Forexpros Daily Analysis - Morning session - GMT

Today’s US Dollar Trading
 
• USD takes another plunge on Fed action and liquidity fears
• Equities have violent day, end positive
• Lots of jawboning for a better USD

Overnight Preview

• Expect volatility and more rhetoric
• Traders expect the majors to pullback soon to correct

Looking Ahead

• Fed has FOMC meeting starting tomorrow, traders expect 75 BP cut
• 7:30 AM CDT Housing Starts and PPI forecast 995K and +0.3%, core +0.2%

Summary
The USD got slammed again overnight trading to some of the worst levels in history against some pairs. The US Fed added liquidity and so did the BOE and traders fear the worst is yet to come in the liquidity “crisis” now panicking Wall Street. JP Morgan agreed to buy Bear Stearns today for $2.00 a share which amounts t around five cents on the dollar leaving investors furious; it’s only a matter of time before the lawsuits, Federal Probes and fines start happening. Traders note that the Greenback was sold heavily on high volumes during the overnight sessions but has stabilized during the New York sessions leaving some to suggest that the majors are going to take a breather for a short time; other desks report that their order books are wiped clean expect for stops on winning positions and the major pairs are less than tradable at this point. Apparently the market needs a correction of some kind or a word from someone who has the credibility to support the “crisis” and stabilize the USD.  The only exception to the USD crash was the GBP; cable broke sharply along with the USD today. Making an early high at the 2.0231 number the rate started to sink on cross-rate liquidation breaking over 700 points against the yen and trading to a 1.9990 low for USD; traders note that the rate has closed below the 100 bar MA again making for a technical reversal. Aggressive traders can ADD to open shorts for additional weakness into the next level of support around the 1.9750 area. EURO rallied to an overnight high at 1.5905 before reversing but holding the overnight opening range at 1.5675 area. Traders note that the rate is technically ready to advance again to the 1.5950 area but the large wick and head scratching suggest that the rally was used by longs to get out. USD/JPY and Swissy too both traded to significant lows; but both pairs have signs of reversals beginning. Low prints in USD/JPY at 95.76 were bought hard and the rate rallied to 97.70 area into the close; Swissy same story rallying off .9640 lifetime low back to the .9870 area into the close. Potential reversal in the works I think. Look for a Fed cut to be factored in.  

EURO/USD Daily

R3:  1.5900/10
R2:  1.5850
R1:  1.5780
Current Price: 1.5745
S1:  1.9670/80
S2:  1.9620
S3:  1.9550

Rate takes the path of least resistance on the news but as the day wore on no follow-through was seen. Long selling wick on the day is the largest wick on daily action in over a year suggesting that volatility is being sold near-term. Late longs likely have stops under the daily low and bids may have been pulled after the highs so far away were hit; traders note that longs likely selling out into the highs. Expect volatility but a top is certainly forming near-term.

GBP/USD Daily

R3:  2.0200
R2:  2.0150
R1:  2.0080
Current Price:  2.0011
S1:  1.9990/2.0000
S2:  1.9940/50
S3:  1.9900

Rate falls back from resistance at the 50% fib defense area, close under the 100 bar MA argues for a near-term continuation of down trend. Look for the rate to open and stay weaker overnight and suffer intraday volatility around FOMC announcement and overseas data. Wait for the close before adjusting positions as I think the volatility will all be small day-traders; not big money accounts. Aggressive traders can add to open shorts and roll protective stops to B/E.