Forexpros Daily Analysis - Evening session - GMT

Overnight Asia/Europe

• UK data no factor for GBP
• USD two-sided

Today’s Economic Reports

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

Looking Ahead

• 9:00 AM CDT Thursday ISM Services forecast 49.2

Summary
The UASD started Asia with a mild pullback after the solid rally seen on Tuesday. Overnight stocks were better but largely on follow-through from US strength seen yesterday rather than optimism on their own. Overnight data was largely neutral for the UK offering Cable the chance to consolidate the recent move into support; cross-spreading for EURO and Yen kept the GBP on the offensive and the rate continues to respect the recent bottom at 1.9720/.30 area with a dip overnight for a low print at 1.9744 before rallying. Highs at 1.9846 remain at the time of the New York open and the rate looks set to advance a bit into the next level of resistance as traders anticipate a weak ADP number this morning. In my view, the rally in USD yesterday was a “head fake” as there has been little follow-through overnight and stronger resistance is in play today than yesterday. Traders note overnight that stops were triggered on the rally in GBP and EURO after low prints into existing support suggesting that late sellers have placed stops in range. EURO fell briefly into support at the 1.5550 area with stops driving the rate on the break below yesterday’s lows; low prints at 1.5533. Traders said sovereign names were seen on the bid into the lows while a US investment house was seen on the offer suggesting the sellers may be late again in the rate. Middle Eastern names were also on the bid and as EURO rallied back to the highs at 1.5675 Cable enjoyed a bit of a sympathy lift as well. USD/JPY has remained two-sided holding support at 101.70 area and resistance at the 102.35 area as neither side has full control of the market to open New York. Traders say the ADP report today could ignite some volatility as the markets appear to be more focused on employment data rather than economic data; which may explain cables muted response to UK data overnight. In my view, the USD is set up for a reversal this morning. I think yesterday’s move was overblown and the rally should be seen as a selling opportunity. Aggressive traders can sell USD/JPY over the 102.00 area and sell GBP/USD 1.9840/50 area; I would be a buyer of EURO under the 1.5550 area but after those lows were bought so aggressively overnight we may not see another drop into that area before we see a test of the highs. Look for a net lower day today for USD and GBP.

GBP/USD Daily

R3: 1.9900
R2: 1.9880
R1: 1.9850/60
Current Price: 1.9832
S1: 1.9800
S2: 1.9780
S3: 1.9740/50

Rate consolidates losses with the “pause that refreshes”; look for the rate to slide off the next 24-48 hours. Potential “doji” close on the day if US data disappoints the GBP bulls as overnight data was a non-event. Support at 1.9720/30 is secure but stops under that area said to be growing and could be quite large; analysts remind that “triple bottoms don’t hold”. Two consecutive closes under the 50 bar MA sets up a test for the stops in my view. Near term fib defense at 1.9850/60 may be the top.

USD/JPY Daily

R3: 102.80
R2: 102.50
R1: 102.20/30
Current Price: 101.99
S1: 101.60/70
S2: 101.20
S3: 101.00

Expect 50% fib defense to cap the rally as no follow-through and light volumes suggest the rally was hard and fast; technical resistance is noted at the 102.50 area also. Overhead may be hard going and early longs likely to bail if lows are breached after ADP; stops on longs set yesterday likely in range and around the 101.50 area. Bids at 101.00 and 101.20 likely to support on the first test suggesting intraday volatility but wait for the close; a net lower day for the USD would signal a rotation lower I think.