Forexpros Daily Analysis - Morning session - GMT

Today’s US Dollar Trading
 
• USD two-sided, ends mixed
• Volumes light

Overnight Preview

• Look for light flows overnight
• Book-squaring ahead of US data in the morning

Looking Ahead

• 7:30 AM CDT Tuesday PPI forecast +0.4, core +0.2%
• 8:00 AM CDT Tuesday TICS

Summary
After starting higher overnight on a generally USD-positive change in the closely watched G7 communiqué, the greenback ends the first day of the week mixed in relatively light trade. After the London fix traders report that volumes dropped and the majors drifted lower as the bulk of market participants covered positions initiated on the overnight volatility. GBP rallied into highs at 1.9896 overnight but drifted lower all day to end the NY session sharply lower off the highs near the important 1.9740/50 area; traders note that the rate still is rotating around the 1.9720/30 area as near-term traders debate the significance of the previous monthly support level. EURO rallied into formidable resistance at the 1.5880 area for a high print in early NY trade at 1.5888 before dropping back during the day a full handle lower. Traders note that the rate is securely trapped in a rising wedge formation combined with drifting volumes suggesting that the rate is coiling for a strong move one way or the other. Should EURO breakout of the wedge higher offers are expected to cap at option defense around the 1.5820/30 are with stops layered above. Technical studies point to a firmer EURO near-term but mostly off a dip into the 1.5720/30 area. Traders note that large names on the bid for EURO overnight and on the break today but remind that the rate has had a very violent last few weeks; EURO could be ready for more volatility. USD/JPY felt obligated to trade along with stocks today as initial strength was sold into highs at 101.50 area and dips into the 100.30 area were bought. Closing slightly better than mid-range the rate is ready to extend losses most desks say after the disappointing reaction to the G7 data Sunday. Most desks are looking for the USD/JPY to range-trade near-term ahead of US data this week which is expected to be USD negative. Look for most of the action to be stop-driven near-term as traders try to make sense of the recent volatility. USD data tomorrow should be USD neutral as the Fed is likely more focused on employment data. Should there be a surprise in the works it most likely will be in TICS. Look for inflation data to be “as expected”; we all know there is a bit out there.

   
 
GBP/USD Daily

R3:  1.9850
R2:  1.9820
R1:  1.9780
Current Price: 1.9754
S1:  1.9720
S2:  1.9700
S3:  1.9680

Rate gives back all the overnight gains as bulls are heavily disappointed by lack of follow-through. In my view, today’s break back to the 1.9720 area after pressing into the 100 bar MA is significant as the downtrend continues to offer resistance at areas where bulls expect to gain control. Look for stops under the 1.9650 area to grow again overnight and offers above the 1.9820 area to thicken. Expect a bounce to be sold hard after a test of the 1.9650 area again.

USD/JPY Daily

R3:  102.00
R2:  101.80
R1:  101.50
Current Price: 101.08
S1:  100.50
S2:  100.00/10
S3:  98.80

Rate gaps higher then fails with highs never being challenged all day suggesting that the rate is attracting active selling; longs who bought on the news have been disappointed all day. Support at the 100.50 area is only near-term in my view and a failure on another rally to hold the 101.80 area suggests a potential for a test of the stops under the 100.00 area. In my view, it is only a matter of time before the longs throw the towel in and push the rate under the 100.00 handle.