U.S. Dollar Immediate Term Rally Setting Scene for Sell off Into End of the Week

By: ForexPros

The USD ends the first day of the week on a high note making gains against the majors with the exception of the Yen; analysts note that the USD/JPY is holding below the monthly opening range suggesting a technical correction is finally in play.

USD/JPY high prints overnight at 99.42 failed to find stops said to be resting above the 99.50 area and weakness in Yen cross-spreads pressured the rate all day. Low prints in late New York at 97.64 cleared stops resting under the 98.00/10 area taking the CTA’s and black-box traders to the cleaners; the rate never managed a bounce of any significance suggesting that a test of the 50 day MA is now in play around the 97.20 area. Traders note that the 270 point sell-off by the DJIA added a bit of pressure to the rate as well with more losses expected overnight arguing for a further USD/JPY decline to start Asia Tuesday.

GBP dropped to the 100 day MA for a low print at 1.4499 but quality bids showed up to lift the rate back to the 1.4950 area into the end of the day; traders note that volumes were lighter on the move and stops under the 1.4550 area failed to encourage active selling.

EURO remained under pressure dropping to a low print at 1.2888 before regaining the 1.2900 handle and holding 1.2920/30 area most of the day. Traders note that a test of the 1.2880 area likely will encourage another round of bids suggesting that a bounce from support might be in the works overnight.

USD/CHF rallied to a high print at 1.1744 before falling back under the 1.1700 handle possibly putting in a high for the week; the rate is holding around 1.1670 area in thin trade leaving a solid sell wick on the day. Traders note buyers were more on the side of technical breakout buying rather than established longs suggesting the rate over-extended to the upside on momentum.

USD/CAD rallied to the 1.2380 area for a high print at 1.2385 before dropping back but late bids kept the rate firm on anticipation of a BOC rate cut this week at the next meeting; traders note that longs were large names suggesting that follow-on buying may lift the rate to test the 1.2400 handle but offers are likely waiting in the 1.2420 area overnight. In my view, the USD rally today was largely technical in nature and stops helped drive trade to the highs but the move was mostly corrective in nature.

With a large drop in equities today along with potential follow-on selling likely overnight the move in the Greenback has momentum for possibly a new high print for the week but with the technical nature of the action seen it looks to me that the buyers are short-term traders who will book fast gains on further strength. Should that be the case a fall-back in the USD would be due by mid-week setting the stage for declines to end the week. Look for the USD to follow-on higher in Asia to start with sellers likely at the next level of resistance.


GBP/USD Daily

Resistance 3: 1.5050
Resistance 2: 1.5000/10
Resistance 1: 1.4950
Latest New York: 1.4542
Support 1: 1.4500
Support 2: 1.4440/50
Support 3: 1.4400


Comments

Rate falls back as stops fire off under the 1.4650 area; rate dragged lower with EURO but cross-spreaders likely pressuring the most. Highs rejected as profit-taking drops rate; tests of the psychological 1.5000 area now complete with a pullback in the works; big question is where the bulls will take a stand again. Rate likely to find buyers on any dip to the 1.4500 area as this was the breakout area. Rate is still holding the 100 day MA nicely and aggressive traders can look to buy dips. Traders note support is likely firm above the 1.4650 area but dip under clears stops quickly. The shorts have lost control of the market above the 1.4440 area now; traders report stops in-range adding for two-way action. Test of further lows likely to encourage a round of short-covering.

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

4:30am GBP CPI y/y
4:30am GBP RPI y/y
4:30am GBP Core CPI y/y
4:45am GBP MPC Member Fisher Speaks
Tentative GBP MPC Member Sentance Speaks


EURO/USD Daily

Resistance 3: 1.3380
Resistance 2: 1.3330
Resistance 1: 1.3290
Latest New York: 1.227
Support 1: 1.2880
Support 2: 1.2850
Support 3: 1.2820


Comments

New low on follow-on selling overnight; rate reaches to tech support around 1.2880 but traders say conditions are still on the thin side but better than Friday. Rate has two-way action into the lows suggesting short-term traders and profit-taking by the shorts. Support at or around the 50 day MA now being tested; the 50 day MA is next level needed to hold for the bulls to feel comfortable this week. Need a rally back over within 72 hours for the drop to be considered a correction and not a breakout. Rate likely has stops building in both directions; overhead resistance likely drops to the 1.3080 area; Long-term bulls are likely still in control of the market and this significant pullback is a buying opportunity in my view.

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

2:00am EUR German PPI m/m
4:00am EUR Italian Trade Balance
5:00am EUR German ZEW Economic Sentiment
5:00am EUR ZEW Economic Sentiment

Analysis by: http://www.Forexpros.com - Written by Jason Alan Jankovsky

Forexpros offers the most definitive Forex portal on the web. It contains industry leading market analysis, up-to-the minute news and advanced trading
tools which provides brokers, traders and everyone involved in the financial market with an all-round guide to Forex.

Copyright © 2009 by ForexPros.com All rights reserved.

Disclaimer: Trading Futures and Options on Futures and Cash Forex transactions involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.