Forexpros.com Daily Analysis - 17/09/2008

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Today’s US Dollar Trading

 

• As expected, Fed leaves rates on hold

• USD recovers a bit as stocks rise

• AIG still overshadows market sentiment

 

Overnight Preview

 

• Look for more USD weakness tonight

• Two-way trade likely

 

Looking Ahead

All times EASTERN (-4 GMT)

• 8:30am USD Building Permits

• 8:30am USD Current Account

• 8:30am USD Housing Starts

• 10:35am USD Crude Oil Inventories

 

Summary

As expected, the US FOMC held rates steady and barely changed the policy statement today leaving the markets to sort themselves out as traders continue to debate direction of the economy and the health of the financial sector. Massive speculation continues to be both positive and negative regarding the fate of AIG today; traders note the stock has dropped under the $3.00/share area for most of the day with its fortunes intraday resting largely on which rumor you listen to. As focus was largely on equities today almost no one noticed the fall in oil prices; dropping to under the $92.00/BBL for most of the day before finishing slightly higher. With all the focus on banking and equities the USD was largely left to play follow-the-leader today as the Greenback continued to trade cautiously and on very light volumes traders say. Despite economic news from overseas suggesting better conditions in the EURO-zone and stable conditions in the UK the USD continued to gain against both EURO and GBP today with both rates pressing to lows after the release of the FOMC rate announcement. Lows in GBP under Monday’s lows were bought back hard leaving the rate well off the lows into the close but traders say lack of liquidity is exaggerating the moves. Low prints today at 1.7734 before rallying back to near the 1.7900 handle. EURO fell to 1.4072 before seeing bids again after holding above the 1.4200 handle for most of the day; volatility was high again and traders expect more the next day or two but with today’s long buying wicks in EURO and GBP the lows for the week may be in. USD/JPY fell to a low print of 103.53 leaving the really big stops under the 103.50 area intact for now and after the release of FOMC rallied two full handles for a high print at 106.01 before dropping back. Most of the action in Yen crosses has kept the rate pressured today and more losses in USD/JY is expected but with s close above the 105.50 area the analysts will get confused as volumes were light; look for more whipsaw near-term. In my view, the Fed doing nothing was likely the wrong move and I think with no signal from the Fed either it shows a potentially unresponsive Fed. Expect the criticism for Bernanke’s leadership to grow moving forward. In my view, the USD has had no real benefit for an advance today; poor economic news today and more due tomorrow. Expect the USD to weaken overnight and into the end of the week.

 

 

GBP/USD Daily

 

Resistance 3: 1.8200/10

Resistance 2: 1.8130

Resistance 1: 1.8080

Latest New York: 1.7854

Support 1: 1.7730

Support 2: 1.7620/30

Support 3: 1.7580

 

Comments

Despite the news today and the Fed action the rate remains near opening range after briefly dipping earlier. In my view, the GBP has weathered the storm fairly well and it suggests no additional down move near-term. Cross spreaders seen active on the sell side but volumes lighter. Rate two-way but firm on dips; traders note bids still absorbing offers on the breaks. Traders note stops mixed with offers above the market also. Major support has held last Friday, any weakness likely to be bought hard. Profit-taking bids continue as well. Hook reversal from the toolbox still valid. Price drop today likely sympathy selling from EURO. Drop is drawing profit-taking bids suggesting the bottom is finally trying to form near-term. Short-covering rally may be over due to sharpness of the move. Likely an exhaustion drop. Close back above the 1.7780 area needed to take some of the pressure off. Corrective drop is a buy opportunity in my view.

 

Data due Wednesday: All times EASTERN (-4 GMT)

4:30am GBP Claimant Count Change

4:30am GBP MPC Meeting Minutes

4:30am GBP Average Earnings Index y/y

4:30am GBP Unemployment Rate

6:00am GBP CBI Industrial Trends Orders

 

 

EURO/USD Daily

 

Resistance 3: 1.4550

Resistance 2: 1.4380

Resistance 1: 1.4300

Latest New York: 1.4125

Support 1: 1.4080

Support 2: 1.4000/10

Support 3: 1.3940/50

 

Comments

Rate breaks hard on whipsaw but recovers to trade back near mid-day ranges. Traders note the rate is firm on dips so far despite the uncertainty in the market. Some sympathy trade from GBP; lows likely in finally from last week. Bids are supporting on dips. Volumes light but that is to be expected. Lots of stops from shorts and longs seen overnight suggesting whipsaw is likely today. Two-way trade and whipsaw result in increased volatility. Stops Friday suggesting bottom-picking is still being tried by early longs. Traders report offers in size being absorbed. Traders suggesting that the rate is trading technically. Market is continues heavily short now so expect a further leg higher. Rate continues to track Cable and vice-versa. Now that more stops are cleared a rotation higher is even more likely. US data this week likely to be unfriendly so be ready for more whipsaw.

 

Data due Wednesday: All times EASTERN (-4 GMT)

5:00am EUR Trade Balance

 

Join us for the Afternoon US Dollar Wrap-Up daily at 3:15 pm Central/Chicago time (GMT -6)

 

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