Daily Analysis - 28/02/08

Today’s US Dollar Trading

• USD continues decline, EURO at lifetime highs
• Durables data worse than forecast
• Bernake comments hint at further fed ease

Overnight Preview

• USD likely to remain on the defense but consolidate
• Traders likely to square positions ahead of US GDP tomorrow

Looking Ahead

• 7:30 AM CST Thursday Q4 GDP forecast +0.7%
• No AM Broadcast Friday—out to Denver

Summary
As if the USD was suddenly determined to be the cause of cancer, traders sold, liquidated or simply ran from the Greenback the past 24 hours. Initially starting firm in Asia after Tuesday’s rout, the USD came under renewed attack as stops and aggressive buying fueled an advance by the majors into lofty levels; US data this morning adding to the bearish conditions. Durable Goods data came out below expectations suggesting that the US economy is worse than expected; traders added fuel to the fire and the EURO scored more lifetime highs as other pairs were also hit during New York trade. Fed Chair Bernake comments before congress underscored the market belief that the Fed intends to further cut rates to stimulate growth; Bernakes’ comments seen as suggesting the Fed will continue to ease all through 2008 and for another 100 BP. Forex TradingTraders saw a wave of aggressive buying in EURO to propel the rate to the 1.5100 handle during New York trade placing the rate a full 300 points higher since Monday’s open; a rather spectacular move and quite possibly an exhaustion top. High prints in EURO at 1.5145 and a firm close suggests another round of buyers waiting in the wings. GBP had a high print during the buying frenzy at 1.9974 but then reversed on the day to trade lower into the New York close; lows made near the close at 1.907. GBP saw Russian selling overnight and the daily studies are all overbought suggesting that Cable is done for the upside near-term. Aggressive traders can sell GBP and EURO into the close as the USD is likely bottomed for the week. USD/JPY fell into stops under the triangle consolidation overnight but managed to stave off a melt-down like the other pairs have seen; low prints at 105.94 were followed by a quick recovery to the 106.50 area suggesting the real-money demand seen under the 106.00 handle is still there. Traders look for the upside stops to be tested next as the amount of selling seen was significantly less than expected from such a long sideways coiling. Tomorrow is GDP and watch for book-squaring tonight, USD is looking very oversold in my view.

USD/JPY Daily

R3: 107.00/10
R2: 106.80
R1: 106.50/60
Current Price: 106.39
S1: 106.00/105.90
S2: 105.80
S3: 105.40/50

Brate breaks out but finds less than spectacular stops and finds support at previous are of semi-official demand and real money account demand at the 106.00 area. Although technically a breakout the volumes were not impressive suggesting that the move may be a head-fake. Look for inside range day closing higher and late shorts to put stops close-in overnight. Lows for the week may be in so look for the rate to back-and-fill the next 24-48 hours.

GBP/USD Daily

R3: 1.9990/2.000
R2: 1.9950
R1: 1.9880
Current Price: 1.9824
S1: 1.9780
S2: 1.9700/10
S3: 1.9650

Rate completes an inverted hammer formation and fails from the monthly opening range suggesting a reversal is in the works. Rally from the 1.9450 area was on relatively light volumes arguing for a bull-trap. Look for rate to fall back the next 24-48 hours; aggressive traders can sell GBP over the 1.9800 handle. Stops likely from late longs to be resting under the 1.9780 area and likely to be in size. Look for upside to attract selling and for a weak close again tomorrow.

Analysis by: Jason Alan Jankovsky in Association with The Forex Edge