Afternoon US Dollar Wrap-Up

After a quiet two-way
start this morning overnight Asia, the USD continued to be burdened with high
volatility in holiday-thinned market today.
Initially about
unchanged in Asia the USD rallied into European trade to start mixed against
the majors but still inside previous ranges. The release of US Current Account
Deficit data saw the majors retreat further into close-in stops in what many
trader’s said was supper-low volume. Initially seen as USD bearish, the majors
made a push into the tops of their respective ranges before short-term traders
began to buy USD pushing the pairs lower into stops where new lows
out-of-range happened in early US trade. Failing to build on those losses the
majors began to recover and by the close of US trading today the lack of
liquidity and volume was evident behind the moves as the USD finished within a
few pips of Friday’s closing ranges across the board.

GBP fell into the next level of technical
support around the 1.9430 area but order-flows were super-light traders say,
EURO fell into support at 1.3050 area again today but no volume on the move;
and USD/JPY was quiet into highs as well but traders say the big issue is the
BOJ rate announcement Tuesday morning where a 25 BP rate hike is not expected.
USD/JPY on the highs at 118.30 area but traders don’t see much more upside
unless the volume gets larger; with holiday trade in full swing that doesn’t
appear likely in my view.

Tomorrow is US PPI and Housing Starts. Of the
two reports, I think the housing data will more likely influence the market.
Inflation pressures seem well contained but the slow-down in housing is still
not fully apparent at this point; look for the PPI number to really have
little effect on the perception of traders but housing likely to once again
increase USD volatility. Overnight Asia likely to see some action after the
BOJ announcement so watch technical levels closely and use existing S/R
numbers for your entry/exit. I think this week and next will be difficult
trading so it is OK to stand aside.


R3: 8680

R2: 8625

R1: 8595

Current Price : 8573

S1: 8540/50

S2: 8520

S3: 8470

Inside range day holding support on 50bar MA,
stops below intact for now and traders say enthusiasm for the short side is
waning. Increase in short positions as of this weeks’ CFTC report suggests
that late sellers are attempting to press their advantage; stops above likely
to be triggered if close in so volatility should remain higher the next few
days. Look for BOJ to do nothing overnight.


R3: 1.3300

R2: 1.3220

R1: 1.3190

Current Price : 1.3157

S1: 1.3130/40

S2: 1.3080

S3: 1.3040

Pair falling to a new monthly low but rallies
back to close higher than previous days close; technical reversal but now
needs follow-through. Look for close-in stops to trigger over night after BOJ
news as cross-traders unwind EURO/JPY. Close under fib defense suggests a
possible retracemment to the 1.3040 area but less likely in my view after
first of year.

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