Forexpros Daily Analysis - Morning session - GMT

Today’s US Dollar Trading
 
• USD rallies hard on stops and new buying
• ISM data better than expected

Overnight Preview

• Follow-through likely but two-way action could result
• Big day for GBP Wednesday

Looking Ahead

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

Summary
The USD rallied hard today as traders covered shorts on stop-loss buying and fresh buying was seen during US trade. Initially overnight the USD was two-sided and steady as Japan Tankan report was released. Traders saw large names on the bid for USD/JPY as the report was considered bearish for Yen and the initial rally faltered into the start of European trade. Stops across the board were elected as the day wore on into the start of New York and the Greenback continued to climb as ISM index data showed a favorable move higher from expectations. Although not a positive report the news was enough for shorts to begin covering and the majors went one-way into and after the London Fix. USD/JPY climbed into waves of stops and fresh buying as technical levels fell for a high print into the end of the day at 102.17; right up against Fib defense for the recent decline. Expectations for a USD pullback before a drive higher were effectively tabled once the rate cleared the stops at the 101.00 handle earlier in the day. Cable fell into near-term support again after initially attracting bids at the triple-bottom monthly low at 1.9728 low prints. The rally was a full handle higher before cross spreaders began to liquidate the GBP side of their trades and the GBP could not hold above the 1.9970 area. Leading the two-way action lower was the EURO falling through stops at the 1.5660 area and eventually putting in a low print at technical support around the 1.5550/60 area; low prints at 1.5562. Traders say that the general tone of the action today was “surprise” that the Greenback was able to push so much higher. Traders note that spec accounts were buying USD today and judging from the sort of action they were seeing earlier last week they likely were covering shorts for a loss. In my view the USD was due for a rally but not before a correction lower. Due to the surprising nature of the move that no doubt cleared a lot of order books I would look for a lack of follow-through to inspire the shorts to re-enter their positions as the rally is still a bounce within a bear market. I think with the next few days of data expected to be USD-neutral to negative the prospects of aggressive buying I think are smaller. Aggressive traders can sell USD/JPY over the 102.00 area looking for a classic bull trap.

USD/JPY Daily

R3:  103.20
R2:  102.80
R1:  102.20
Current Price: 102.00
S1:  101.50
S2:  101.00
S3:  100.80

Rate has a two-Yen rally during New York trade as stops were cleared and aggressive model/momentum/spec accounts attempted to ride the rally. Fib defense at 102.20 area likely to hold for a modest pullback at least as this number was where sell stops were residing for early bottom pickers on the way down. In my view the rally was welcome but a bit overdone; look for a pullback to accelerate if US data the next two days is USD-negative. Stops from buyers likely in range. Expect volatility.

GBP/USD Daily

R3:  1.9920
R2:  1.9880
R1:  1.9850/60
Current Price:  1.9761
S1:  1.9720/30
S2:  1.9680
S3:  1.9660

Rate respects monthly low on two attempts today and three over the last month suggesting that there is good support at the 1.9720/30 area near-term. A rally back over the 50 bar MA would be a solid selling opportunity in my view as the 1.9900/50 area is becoming solid resistance. Stops likely building for a further move lower under the 1.9700 area with likely bids to support around there to 1.9680 area. Look for two-way action to remain through the overnight session ahead of ADP.