Forexpros.com Daily Analysis - 16/10/2008

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Daily Forex Trading Analysis

 

Today’s US Dollar Trading

 

• Two-way trade after the open

• US data negative but traders still watching credit

• Technical trading finds some stops

 

 

Overnight Preview

 

• Look for some light follow-on buying of USD, then a fade

• Should get quiet ahead of US data

 

 

Looking Ahead to Thursday

All times EASTERN (-4 GMT)

• 8:30am USD CPI m/m

• 8:30am USD Unemployment Claims

• 9:00am USD TIC Long-Term Purchases

• 9:15am USD Capacity Utilization Rate

• 9:15am USD Industrial Production m/m

• 10:00am USD Philly Fed Manufacturing Index

 

 

Summary

The USD is ending the day mixed today after a solid two-way overnight session last night; holding on to gains against the GBP and EURO and making new highs around the London fix. Forex traders note that focus remains on the weakness in the financial markets and a 500-plus point drop in the DJIA today didn’t help sentiment despite weak economic data this morning. US data was USD-negative this morning and more is due tomorrow leaving the fundamental picture for the Greenback looking dismal; so why are traders still buying USD today? Some desks suggest that the tide is beginning to turn on that thinking and note that despite the credit-crisis and the liquidity crunch, the major pairs are all being sold for JPY for the most part. If the situation in the US is similar to the situation in Japan during the 1990’s then a sharp devaluation of the currency would be expected. It is hard to argue for a stronger USD long-term if the Fed will be forced to drop rates back down to the 1.0% level or lower in order to attempt a recovery from a recession/depression;; which the US is no doubt on the verge of. Still, USD remains bid against most pairs today with the exception of JPY. GBP high prints at 1.7604 went unchallenged today in New York and at the London fix dropped to new lows; traders note stops triggered along with active selling for a low print in late NY at 1.7298. GBP is very near a technical buy-point in my view after this morning’s failure to hold gains above the 1.7550 area; look for bids around the 1.7250 area overnight to support. EURO followed GBP lower for a low print at 1.3495 and is hovering off the 1.3500 handle in light trade. Volatility is likely a sign of near-term bottoming and I would look for a buy point in EURO on further weakness to the 1.3420/30 area if we get it overnight. USD/JPY fell victim to the weakness on Wall Street today holding its own for most of the day near the opening ranges but unable to show any strength at all in NY; low prints came as the DJIA slide off with current low prints at 100.42 making for a try on weekly lows but finding a bit of support; look for more downside in Asia overnight. USD/CAD continues to baffle traders as a rally through the 1.1850 area topped out at 1.1889; a full three big figures off the lows seen in Asia overnight. Panic trading of the pair likely was augmented by falling oil prices as Crude dropped three bucks to trade at another weekly low. Traders remind that the USD has a significant economic problem to reflect and current pricing is looking very toppy; but until the sentiment turns on the credit crisis the USD will likely suffer more two-way action with lots of volatility. Look for the USD to remain range bound after a try for slightly better highs overnight as tomorrows data is likely to be unfriendly.

 

 

GBP/USD Daily

 

Resistance 3: 1.7720

Resistance 2: 1.7680

Resistance 1: 1.7630/40

Latest New York: 1.7327

Support 1: 1.7300

Support 2: 1.7250/60

Support 3: 1.7220

 

 

Comments

Rate firms after fall back yesterday but suffers selling after London; pullback to support around the 1.7380 area challenged and stops found under for lows. Rate at buy zone now but wait for further drop into 1.7250 area. Cross-spreading liquidation likely supporting the rate but two-way action adding to volatility. New Lows last week around the 1.6800 area likely to hold now. Traders note quality bids on the dip suggesting a bottom is in here somewhere. A solid close over the 1.7300 handle has likely helped the longs; expect more buying on dips. Aggressive traders can look to the buy side again on any dip the next day or so. Follow-on selling likely from technical’s but spillover strength from EURO likely to be better to end the week. Look for a recovery back to the 1.8000 handle near term; two-way action likely to continue. Confirmed sovereign interest on the dip last night as semi-officials seen on dips in both EURO and GBP recently. Traders report cross-spreading for Sterling crosses likely driving the rate near-term.

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

NONE

 

 

EURO/USD Daily

 

Resistance 3: 1.3880

Resistance 2: 1.3820

Resistance 1: 1.3780

Latest New York: 1.3507

Support 1: 1.3500

Support 2: 1.3480

Support 3: 1.3450

 

 

Comments

Cross-spreading is mitigating and EURO/JPY is recovering driving support for EURO; bailout plan is likely to fuel recovery. Dip from highs holds technical support and should attract a rotation higher. Two-year low on a Friday likely a bottom near-term. Rate at a buy point after latest attempt higher; OK to buy the next dip. Pullback under the 1.3500 handle likely to attract bids as further dip was bought aggressively last time. Rate is an absolute screaming buy in my view. Aggressive traders can buy anytime under the 1.3900 handle in my view but be ready for continued two-way action ahead of a rally. Oil two-way spills over into pricing but rate firm despite lower oil. Traders note stops building above the market along with offers. Expect more two-way action with upside bias; traders note the rate is finding profit-taking bids on dips so far despite the uncertainty in the market. Traders suggesting that the rate is continuing to trade technically. Traders note official names on the bid.

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

4:00am EUR Italian Trade Balance

 

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

 

Analysis Provided by: Forexpros.com - Written by Jason Alan Jankovsky

 

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