Afternoon US Dollar Wrap-Up

Despite good follow-through selling overnight
the USD was able to advance modestly against a few pairs today in post-report
trade but traders remind that most of the action the past 72 hours has been
Yen related cross-spreading; not USD focused exclusively. After yesterdays USD
rout further selling was seen overnight Asia and into European trade but
mostly solid ranges until US data this morning. Forecast at 51.5, ISM index
came in at a disappointing 49.3 suggesting that the economy is now in the
contracting mode. The USD sold-off sharply on the news but was able to hold
technical support/resistance and rebounded in thinner conditions and remained
supported for most of the day. Traders caution that the USD has not built
strength so much as rallied on early short-covering most suspect and warn that
some technical damage was done today and a test of the lows is not out of the
question. USD bulls have a lot to worry about if the economy is contracting
but it is early in the “soft landing” scenario so most analysts continue to
expect solid two-way flows at least through the next few weeks.

Cable rallied into stops above the 1.9700
handle for a high print at 1.9741 but was unable to hold gains falling back to
close back under the 1.9700 handle; traders remain optimistic for higher
prices but caution that GBP is also subject to pressure from Yen carry
unwinds. EURO scored the 1.3054 high about the same time as GBP and fell off
about the same suggesting that EURO was moving solely in sympathy trade but
still a solid close over 1.3000 suggests that EURO has the potential to
break-out to the upside and lead the complex higher against the USD near-term.
Many analysts note that the rally higher caught EURO bears by surprise
suggesting that the recent consolidation is coiling for a continuation of
uptrend for the quarter. USD/JPY broke down to a 120.10 low print but failed
to trigger large stops rumored to be layered in the 120.00 area or below,
traders note that the resulting up tick was on light volume and the close was
‘uninspiring”. Should today’s higher price action in USD/JPY be a bull trap
there will be larger volatility overnight; look for the USD/JPY to lead the
complex during the Asian session despite Yen cross-trading. Look for US data
to disappoint the USD bulls, I’m looking for the greenback to make lows for
the week tomorrow and finish weaker.


R3: 1.9850/60

R2: 1.9800

R1: 1.9750

Current Price : 1.9672

S1: 1.9620/30

S2: 1.9580

S3: 1.9550/60

Technically a strong day but a stronger finish
would have helped the bulls case a bit, some two-way trade later in the day
but overall a good follow-through to the upside ahead of US data on Friday.
Volumes not impressive today suggesting that traders are taking a “wait and
see” attitude towards the health of the rally. OK to add to open longs on a
pullback as long as the 1.9620 area holds on a sell-off.


R3: 8420

R2: 8400

R1: 8380

Current Price : 8336

S1: 8300

S2: 8280

S3: 8250

Rate forms a near-term potential double top
from last week’s highs but retracement to the close on light volume. Inside
range day closing higher tomorrow would give pause to the bullish point of
view but large overhang of open shorts needs to be cleared before price can
decline in my view; upside potential still greater. Look for a rally to test
the 8500 area near-term.

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