Technical trade likely to continue

Overnight Asia/Europe
 
•USD two-way
•UK and Eurozone news push those lower
•Technical trade likely to continue

Today’s Economic Reports
All times EASTERN (-5 GMT)
•No reports due on Monday
No real news until PPI on Tuesday.

Looking Ahead to Tuesday
All times EASTERN (-5 GMT)
•8:30am USD Core Retail Sales m/m
•8:30am USD PPI m/m
•8:30am USD Retail Sales m/m
•8:30am USD Core PPI m/m
•8:30am USD Empire State Manufacturing Index
•10:00am USD Fed Chairman Bernanke Testifies
•10:00am USD Business Inventories m/m
•10:00am USD IBD/TIPP Economic Optimism

Summary
The USD is back on the offensive this morning after disappointing economic news from the Europeans plus comments from the US RE: a Freddie/Fanny bailout encouraged traders to buy USD overnight. UK Producer Inflation hit double-digits in May and the GBP fell as speculation rose that the economy would slow more in coming months; traders note that more weight given to USD strength and EURO data than domestic news overnight. Traders bought USD across the board overnight once it was confirmed that the US intends to aid both Freddie Mac and Fanny Mae to prevent further declines in housing and economic slowdown. In my view, the aid is probably going to help but the overall volumes and upside seen in the USD looks more like a “knee jerk” reaction than a change in sentiment. Although EURO scored solid highs late last week and attempted to add to those gains today the rate fell on an unexpected drop in EMU Industrial Production; falling 1.9% last month. EURO dropped to a low print at 1.5840 after Russian and Swiss names were seen selling along with hedge funds. GBP dropped in sympathy with EURO for a low print after all the news at 1.9714 before recovering back near the closing range for Friday. USD/JPY and USD/CHF both rallied as the USD gained strength during the Asian session for highs in late Europe; USD/JPY found light stops for a high print at 106.82 while USD/CHF found stops as well but only managed a high at 1.0253. Both pairs have more stops above the market traders say but offers are expected to cap ahead of last week’s highs. In my view, the USD has traded more two-way and within range following through from last week and is not set to break out of those ranges early this week. Likely that it will take news due tomorrow and later to push trader’s perception that a correction in the USD is under way. Look for more technical trade the next 24 hours as traders adjust positions for smaller gains and whipsaw.   

EURO/USD Daily 
Resistance 3:  1.9980
Resistance 2:  1.9950/60
Resistance 1:  1.9920/30
Latest New York: 1.9871
Support 1:  1.9800/10
Support 2:  1.9750/60
Support 3:  1.9700/10

Comments
Rate little changed but sellers in control to start; follows EURO higher, stops above the market cleared Friday and volumes dried up. Bids likely under the 1.9800 area to support near-term but sell signal is active; traders report a lot of stops building under the 1.9790 area. Traders expect GBP to track EURO through this week. Traders now expect a top to form as the rate had thinner volume on the rally last week into the reported option defense last week. Continue to expect a lot of cross-trading. 

Data due Tuesday: All times EASTERN (-5 GMT)

4:30am GBP CPI y/y
4:30am GBP Core CPI y/y
4:30am GBP RPI y/y

EURO/USD Daily
Resistance 3:  ?
Resistance 2:  1.6000/10
Resistance 1:  1.5980
Latest New York:  1.5844
Support 1:  1.5820/30
Support 2:  1.5780
Support 3:  1.5750

Comments
Rate has a short-squeeze last week as stops above the 1.5800 and 1.5880 area trigger; model accounts on the bid Friday traders say. Selling from solid sources capped rally Monday. Technical trade and sympathy with Cable remains the main driver. Major support at the 1.5580 area and slightly below. Stops likely under the 1.5680 area but option defense reported at 1.5650 area. Stops noted under the previous lows layered under 1.5600 to 1.5550 traders say but those are now out of range. The 50 bar MA likely to offer support should the rate fall back; bids will likely be in the 1.5580 area or so on any meaningful correction. Exponential reversal still valid. Oil volatility helping to whipsaw the rate. 
 
Data due Tuesday: All times EASTERN (-5 GMT)

5:00am EUR German ZEW Economic Sentiment
5:00am EUR ZEW Economic Sentiment

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