Forexpros Daily Analysis - Evening session - GMT

Overnight Asia/Europe
 
• USD initially firmer in Asia, breaks lower in Europe
• Traders note stop-driven trade
• Demand for EURO from Middle-East accounts noted

Today’s Economic Reports

• None of note in the US

Looking Ahead

• All eyes on US CPI Friday forecast +0.3%, core +0.2%
• Speculation growing for 75 BP rate cut next week by FOMC

Summary
The USD is lower to start New York after a firm start in Asia evaporated into European trade. Despite firmer equities overnight and follow-through from Tuesday’s strong rally the Green back failed to hold onto gains and the majors reversed back into their highs on mostly stop driven trade. Overnight desks report that demand for EURO was seen by Middle-Eastern accounts and rumors of some semi-official buying off the lows around the 1.5350 area helped push the rate into stops at the 1.5390 area. Once those stops were triggered the rate saw waves of stops layered between 1.5400, 1.5430, and 1.5450 for a high print at 1.5479 before offers capped the move again under the 1.5500 psychological barrier. Stops being triggered close-in within range is often a sign of weak hands liquidating suggesting there is a lot of early interest in the short side from the highs; I think the two-way action and covering the same ground twice is a good sign of a top trying to form. Aggressive traders can ADD to short EURO positions from the 1.5450 area. In my view, the EURO continues to be severely overbought and a top is inevitable sooner or later. If this is the top forming for the correction then there should be more clues by the end of the week and with US CPI on Friday. Market tops don’t need much of an excuse to break so be nimble if you are on the long side of EURO. Cable followed EURO higher into strong resistance at the 2.0200/20 area and found it tough going at the triple-top; high prints at 2.0218 were quickly sold and the rate is on the 2.0160/60 area to open New York. USD/JPY held firm most of the overnight session first holding on to the 103.20/30 area through Asia and resisting the sell-off seen in the other pairs until late in the European session; lows eventually found at 102.43 after stops under the 102.80 area were triggered. Traders note that across the board the interest in the majors appears thinner than previous highs suggesting that large names may be staying away from the long side or trying to buy dips; in either case that argues for a more limited upside near-term. Look for the USD to continue two-way ahead of CPI on Friday as the news is light until then. Expect a bout of profit taking by the shorts soon.

EURO/USD Daily

R3:  ?
R2:  1.5490/1.5500
R1:  1.5470/80
Current Price: 1.5466
S1:  1.5420/30
S2:  1.5400
S3:  1.5380

Rate technically still an inside range day, highs at 1.5479 drawing good selling and overhead resistance is getting thicker with the 1.5500 figure drawing a lot of protective option defense. In range stops to the upside seen as the main driver overnight suggesting lots of early sell interest. Stops under the market likely to be close in also due to late buyers or short-term buyers. Look for a sharp break on “Fed-Speak” from Bernanke this week or Trichet overseas; the market is looking for direction in my view.

GBP/USD Daily

R3:  2.0250
R2:  2.0210/20
R1:  2.0180/90
Current Price:  2.0160
S1:  2.0120
S2:  2.0100
S3:  2.0080

Rate tries for highs one more time and is turned back at the triple-top at the 2.0220 area making the resistance a quadruple-top; very strong resistance in my view. OK to ADD to shorts from the 2.0180 area looking for a break back to the 100 bar MA again. Close under the 2.0070/80 area likely to draw a long-liquidation break. Stops likely close-in and in-range again on the way down from late longs; likely building in the 2.0130/40 area as that was good resistance on the way higher.