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Forexpros Daily Analysis - Evening session - GMT

By:

Forex Trading Edge

2008-18-03

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Overnight Asia/Europe

• USD Consolidates, firms against Yen
• Volumes light
• Official supply seen in EURO

Today’s Economic Reports

• 7:30 AM CDT Housing Starts and PPI forecast 995K and +0.3%, core +0.2%
• 1:15 PM CDT FOMC rate announcement

Looking Ahead

• Friday is Philly Fed forecast -18.0

Summary
The USD is two-sided in modest consolidative trade opening New York mixed, traders note that volumes are only modest and trade is subdued awaiting the FOMC announcement this afternoon. Although the USD saw a panic selling day on Monday traders say that the FX markets are calmer today after cooler heads begin to assess the real state of affairs. Overnight equities markets were higher and the DJIA is called to open higher as well. Should the FOMC make a full 100 BP cut in rates today the feeling is that the equities markets will rally and the USD will drop to another low although most traders agree the USD is very oversold and a severe case of “buy the rumor/sell the fact” could develop. In my view, the markets have panicked the past week or so and a sense of euphoria has overshadowed rational trading. I think anything less than a 100 BP cut will “disappoint” the markets to some degree and after the initial whipsaw in volatility the USD will have a relief rally the next few days as traders have to reprice the Greenback. As New York gets underway ahead of US data due out shortly the majors are mixed with GBP and EURO higher and the Yen lower. Cable is the big mover overnight making highs in late European trading at 2.0185 after disappointing UK CPI data encouraged some selling. Asian lows at 1.9953 were bought by CTA-type accounts traders say. In EURO, offers are layered between 1.5800 1.5880 across the board traders say with official sales noted at 1.5790 and 1.5800 overnight in Europe. Although the EURO is higher this morning the volumes are light and there is a sense that the pair may be ready to pullback dealers say. In my view, the EURO is overdue for a correction and the FOMC rate change may be enough to encourage a sell-off. USD/JPY is two-way but higher as traders see some short covering ahead of data. Many traders note that there is a significant amount of commentary coming from Asia suggesting that the BOJ may need to intervene in the FX markets to support the USD. Although unlikely, it is enough to keep traders cautious. Ahead of US data due out shortly traders report light volumes and lots of small accounts active. In my view, look for a two-way violent day and a higher USD net the next few days.

USD/JPY Daily

R3: .9900
R2: .9820/30
R1: .9780
Current Price: .9736
S1: .9700
S2: .9670/80
S3: .9600

Rate currently an inside range day with an upward bias suggesting that the selling is taking a break near-term ahead of data and FOMC today. The rate is severely oversold and technically is due for a bounce but traders expect any rally to be sold. Stops are likely close-in by late shorts as traders report CTA and model type accounts active yesterday and today on the sell side. Not much resistance ahead of .9820 area and .9900 so look for a sharp rise on USD friendly news. Close over the 9900 handle needed for extended rise.

EURO/USD Daily

R3: 1.5900/10
R2: 1.5880
R1: 1.5840/50
Current Price: 1.5817
S1: 1.5750
S2: 1.5720
S3: 1.5680

Rate sees late buying on follow-through from smaller accounts and CTA-type accounts traders say, volumes light and the rate appears to be grinding higher with little selling interest except for official offers in the 1.5800 area. Rate is very overbought and due for a correction and traders fear stops rolled up under the Monday low could be in size. USD friendly data today could spark a sell-off but any break would be seen as corrective. Aggressive traders can look to sell the rate after FOMC on positive USD news.

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