Forexpros Daily Analysis - Morning session - GMT

Today’s US Dollar Trading
 
• USD has violent session
• BOE cuts rates, ECB on hold
• Book squaring likely helped volatility

Overnight Preview

• Look for the USD to remain two-way into the G7 meeting
• Lots of head-scratching in USD/JPY likely to keep that pair range-bound

Looking Ahead

• 9:00 AM CDT Michigan Sentiment forecast 69.4
• G7 communiqué released during the day

Summary
The USD had a wild ride today as sellers tried to take control of the market only to see their gains evaporate during the US trading session; most notable was the USD/JPY reversal from low prints at 100.02. After starting firmer and two-way in Asia the Greenback came under heavy selling interest during European trade and the USD/JPY appeared ready to test demand under the 100.00 handle but Japanese names came in at the lows and supported the market. Stops were close-in from shorts overnight traders say at the 100.50/60 area and more at 100.80 and once those were tripped the USD took-off for a spectacular recovery to post highs on the day and mark a reversal for high prints at 102.06.Swissy had a similar day erasing overnight losses and posting a technical reversal also. Most traders are at a loss to explain the sharp rally after the large overnight break other than to say volatility worked both ways today and cleared out stops in both directions. With no new orders working the majors are likely to sit range-bound and two-way overnight. Cable rallied and tripped stops also for a high print in Europe at 1.9846 on volatility after the BOE announced a 25 BP rate cut; but sellers came in force and once the USD started to rally the GBP broke back hard to make lows in New York trade during the London fix with more lows coming later in the session. Low prints in GBP at 1.9704 so far holding but the rate looks set to close under the key 1.9720/30 area. Aggressive traders can add to the rate if not already short during the day; today’s action a strong reversal for lower prices I think. EURO scored a new lifetime high at 1.5915 and traders say the rate was ready to advance into the 1.60 handle but the ECB left rates on hold with a decidedly neutral press conference suggesting that traders were not going to see either a rate cut or a hike anytime soon and longs chose to take profits off the table. Helped by Cable, EURO reversed into stops close-in making lows under the 1.5820 area and then accelerating through support for a low print at 1.5724. Balance sheets are a mess; OK to sit out Friday if flat.
 
EURO/USD Daily

R3:  1.5915
R2:  1.5860
R1:  1.5770/80
Current Price: 1.5733
S1:  1.5700/10
S2:  1.5650
S3:  1.5600

Rate reverses hard from lifetime highs and scores a hook reversal in the process. Aggressive traders can look to sell a bounce as it looks like the 1.60 area may not happen easily. Close under the 1.5660 area on Friday makes for a serious weekly selling pattern from the high in my view. Although we got a new high and a reversal—my expectation of that happening from the 1.60 handle apparently is moot. Look for this sell-off to gather momentum the next 72 hours. 

USD/JPY Daily

R3:  102.80
R2:  102.50
R1:  102.00/10
Current Price: 101.84
S1:  101.20/30
S2:  100.70
S3:  100.00

Rate blasts higher after sell-off this morning and makes a mess of balance sheets everywhere; market untradeable as volatility is completely out of normal parameters. Most traders are at a loss to explain the strength and the close; very difficult read moving forward in my view. Stops cleared in both directions two times today making everybody gun-shy and likely to remain sidelined for the rest of the week. Look for an inside range day Friday on light volume.