U.S. Dollar Putting in a Top as Risk Aversion Diminishes

By: ForexPros

The USD is under pressure this morning after starting a holiday-shortened week about flat in Asia. Tokyo had a holiday today leaving a lot of Asian players on the sidelines making for slow and thinner trade; traders report that stops are building on both sides of the market after last week’s neutral close and Friday’s USD retreat. Equities provided a bit of lift to the majors as follow-on buying of Asian markets and Europe holding firm ahead of US trade. DJOA futures are called to open higher on Wall street which is no doubt keeping the majors on the offensive to start the day. USD/JPY rallied higher with equities as expected but was unable to clear above the 96.00 handle with any conviction; high prints at 96.09 were offered to cap the rate before heading lower.

Traders note that most desks expect further price declines in the rate as the Yen technically remains the strongest currency on the board. GBP held Friday’s lows with a low print at 1.4840 before reversing and slowly building momentum into highs; high prints in late Europe at 1.5046 with traders noting stops above the psychological 1.5000 area getting hit. EURO held above Friday’s lows as well; low prints at 1.2566 in European trade after starting flat in two-way action in Asia. Traders note that this morning’s IFO sentiment index came in lower than forecast at 85.8 and traders offered the rate lower but were unable to find stops; high prints at 1.2720 in late European trade as the rate reversed losses on positive equities.

Traders note that both GBP and EURO saw semi-official names and an Asian sovereign on the offers overnight but size was smaller suggesting that selling interest from large traders may be dropping a bit. USD/CHF opened lower and held off an attempt to rally; high prints at 1.2228 area under Friday’s highs with lows at 1.2124 holding previous resistance suggesting that stops will be building as expected around the 1.2080 area. Aggressive traders can sell strength in the rate above the 1.2180 area in my view. USD/CAD is also under pressure staying near lows at 1.2650 area with a low print at 1.2635 in early New York making for a clean sweep against the USD to start the week.

IN my view the USD is putting in a top at current levels continuing to make signs that buyers are running out and that the majors are continuing to consolidate ahead of a solid short-squeeze. With a holiday-shortened week it is possible that traders will square their books ahead of the four day weekend and with a market that is heavily long that would mean some significant selling pressure. Look for the USD’s fortunes to ebb and flow with equities today; a higher close on Wall Street would likely encourage the EURO to rally a bit.

GBP/USD Daily

Resistance 3: 1.5200/10, Resistance 2: 1.5120/30 , Resistance 1: 1.5050

Latest New York: 1.4949

Support 1: 1.4700/10 , Support 2: 1.4650 , Support 3: 1.4550

Comments

Follow-on selling drops rate into next support at the 1.4700 area last week but rate starts firmer. Traders note solid two-way action with stops building above the market likely in the 1.5050 area and higher. Some stops over 1.5000 flushed overnight. Sellers hold control above 1.5000 today as rate backs off highs but lows hold. OK to buy if flat on a dip. Traders also note the same names seen in size on the bid the past few days has been on the offer overnight. Cross spreaders continue to hold interest near-term; profit-taking likely to result in a squeeze on the further strength. Technical trade overnight as traders decide near-term action with little to go on but the charts. BOE rate cut next month increasingly likely but that is likely completely factored in at this point. Traders note liquidity is only moderate and still on the lower side. Aggressive traders can look to buy the next dip.

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

4:30am GBP BBA Mortgage Approvals

4:30am GBP Prelim Business Investment q/q

4:45am GBP MPC Treasury Committee Hearings

EURO/USD Daily

Resistance 3: 1.2880 ,Resistance 2: 1.2850 , Resistance 1: 1.2800/10

Latest New York: 1.2744

Support 1: 1.2420 , Support 2: 1.2380 , Support 3: 1.2320/30

Comments

High prints in early New York as stocks firm further ahead of the US open. Follow-on selling drops the rate into light stops after IFO data released but lows hold above Friday’s action. Rally off the lows to score highs at 1.2740 area suggests bids are building under the 1.2600 area as expected. OK to try the long side again on a dip. Bids support to hold rate firm after whipsaw; likely some spillover support from GBP. Two-way action still suggesting a point on indecision; traders note stops building above the market around the 1.2750 area in size suggesting short-term traders active on the sell-off; stops under the market in size likely around 1.2350 now after weekly lows last week hold.

Traders report some semi-official interest the past 72 hours with possible sell interest at the highs overnight to start. On a rally, traders note large stops at the 1.2950 area with more over 1.3000 but offers likely to cap. Support also from cross-spreaders as they unwind Yen. Rate is an absolute screaming buy in my view—I can’t see further weakness being ignored by the buyers. Traders note the rate is finding profit-taking bids on dips so far despite the uncertainty in the market.

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

2:00am EUR German Consumer Climate

2:00am EUR German Final GDP q/q

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

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