Forexpros Daily Analysis - Evening session - GMT

Overnight Asia/Europe
 
• USD rallies after slow start in Asia
• Stops drive a lot of trade
• Tankan report Yen bearish

Today’s Economic Reports

• 9:00 AM CDT ISM Index forecast 48.2%

Looking Ahead

• 7:15 AM CDT Wednesday ADP private payrolls forecast -23K

Summary
The USD is higher across the board this morning after starting slower overnight Asia; traders were waiting the release of Japan’s Tankan report in early Tokyo trade. Forecast to be lower the report actually was released lower-than-expected and all parts of the report showed losses; the USD rallied on the news and scored the 100.00 handle in early trade. Good two-way action and cross-spreading for the high yielding currencies kept the USD range-bound until stops were hit and the majors fell into European trade. Bids were plentiful traders say and big names were seen lifting the USD into stops above the overnight highs. USD/JPY hit stops at 100.30/40 area for a high print in late European trade at 100.69; more stops are said to be layered above the 100.70/80 area and likely are for short-covering. Although a USD rally is expected to correct the oversold condition the move higher this morning is on only moderate volume as traders continue to expect poor economic news this week keeping the greenback under pressure. In my view, the rally into the 100.70/80 area will draw exporter offers in the USD/JPY and longs need to be careful against the residual sell interest. The rally is coming but the potential for one more test of the lows is still very high across the board so a USD rally this week is unlikely; these may be the highs for the week in my view. Cable is weaker finding support at the previous monthly lows; low prints at 1.9737 have been followed by a sizable rally and the rate opens New York at the 1.9830 area. Support was seen from Russian names traders say and cross-spreading in the EURO/GBP pair. EURO is softer this morning being unable to build on the attempt to rally yesterday; highs overnight in Asia at 1.5790 were sold by a Swiss name traders say and the rate was pressured all day into the lows at 1.5623. Again, traders report that stops were the main driving factor as the 1.5700 handle fell and the 1.5680 area fell; a rally to test the breakdown is expected and shorts are likely to cover on a drop into the 1.9550 area should more long-liquidation take place today. US news will likely focus on employment data this week so today’s ISM data is likely to create liquidation pressures more-so than taking of new positions. I think the early USD longs will quit on poor news; wait for ADP tomorrow to flush USD longs.

GBP/USD Daily

R3:  1.9980
R2:  1.9940/50
R1:  1.9880
Current Price: 1.9852
S1:  1.9820
S2:  1.9780
S3:  1.9720/30

Rate finds support at monthly lows as expected and at this point is building an inverted hammer formation arguing for an advance near-term; traders note that stops drove prices lower and bids are likely from shorts covering with fresh buying mixed in. In my view, give the market a test of the 1.9950 area and sell; 100 bare MA likely to offer a solid cap on the market. Bids under the 1.9720 area likely to get pulled if the rate backs off from current pricing quickly today; no one wants to buy a break through monthly lows.

USD/JPY Daily

R3:  101.20
R2:  101.00
R1:  100.80
Current Price: 100.59
S1:  100.20/30
S2:  100.00
S3:  99.70/80

Rate breaks into stops above the market after Tankan report disappoints the bears; a close over the 100.50 area argues for continued advance but offers are said to be waiting in the 100.80 area or slightly higher. Bids under the market are in the 99.20/30 area so two-way volatility may develop if the rally fails. Look for stops on new longs to be close in but large stops are still said to be resting in the 98.50 area. Rate may be only extending the consolidation range so be ready for a fall back.