USD rallies as commodities drop - Evening Session - GMT

Overnight Asia/Europe
• USD rallies as commodities drop
• Stops drive trade
• Japan PM Fukuda resigns

Today’s Economic Reports
All times EASTERN (-4 GMT)
• 10:00am USD ISM Manufacturing PMI
• 10:00am USD Construction Spending m/m
• 10:00am USD ISM Manufacturing Prices

Looking Ahead to Wednesday
All times EASTERN (-4 GMT)
• 7:30am USD Challenger Job Cuts y/y
• 10:00am USD Factory Orders m/m
• All Day USD Total Vehicle Sales
• 2:00pm USD Beige Book

Summary
The USD is sharply higher this morning as FX trading gets back to full swing after the Labor Day holiday in the US. Sharp falls in commodity prices most notably Crude Oil after damage from hurricane Gustov is expected to be light is driving USD bids this morning; traders note most of the action appears to be resting stops. All pairs saw option related defense on the rally but the USD is trading at new highs for the quarter so far to start New York. Cable has dropped to a low print at 1.7780 despite profit-taking bids as stops fired off under the 1.7900 handle. Traders report selling has been in sympathy with EURO as that rate breaks through reported major bids; Cable now set to challenge the 1.7740 area as momentum favors the bears but traders note that large names have been seen buying on the dip to the 1.7810 area. EURO has a low print at 1.4465 despite the presence of Swiss private bank buys above the market on the break. Traders also note Russian names on the bid as well. EURO fell through stops layered under the 1.4550 area and traders note sympathy selling along with Cable making you wonder which pair is leading on the break; traders note the sharp $7.00/BBL fall in crude prices as having the most effect on pricing so far this morning. After an early start to the downside USD/JPY has rallied along with other pairs during late Asia with little initial reaction to the resignation of PM Fukuda last night; traders note that the low prints saw light buying but the offers were not there after the lows at 107.76 traded in Asia leaving the rate under reversal; traders report Asian Reserve Managers selling USD across the board but unable to stop the rise higher. Exporters and option defense noted as well as the rate rallied to the 108.80 area for a high print in late Europe at 108.95. Swissy has also rallied hard to trade the 1.1100 handle. High prints at 1.1133 saw stops trigger above the 1.1080 area and the rate is firm above the 1.1100 handle for now. USD/CAD has traded back to the recent highs forming a double-top at the 1.0720/30 area before falling back; traders note that the rate appears to be tracking oil as well. For the first day of September the USD is on the offense across the board most likely as a vote of confidence that energy prices are falling. Despite the large amount of selling interest on the move the momentum is with the bulls today. With poor US data expected this week it will be unlikely that this rally can hold in my view. Look for topping action on lower volume the next 48 hours; the Greenback has likely run its course for the week.

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