Forexpros.com Daily Analysis - 27/03/08

Forex Daily Analysis

Today’s US Dollar Trading

• US data positive but USD falls
• EURO rallies past resistance and is again “euphoric”
• Sentiment returning to the bearish side traders say

Overnight Preview
• Look for the USD is firm in Asia and then come under pressure in Europe
• Some book-squaring likely ahead of US data

Looking Ahead
• 7:30 AM CDT Thursday Q4 GDP forecast + 0.6%

Summary
Despite positive news from US data today the Greenback continued to remain on the defense all day building on European weakness from the start. Although the USD started in Asia on the firmer side the firm USD was short-lived as general bearish sentiment has returned to haunt the USD bulls. Trading softer all morning, traders expect the USD to continue on the defense through tomorrow’s GDP data. Today’s New Home Sales were better-than-expected and included a revision higher to last month’s numbers but the forex majors refused to trade lower and in fact continued to make highs all day into and after the London Fix. The one exception was USD/JPY which never revisited the morning lows but continued to build on the 99.00 handle. Low prints at 98.87 were never challenged and despite USD weakness elsewhere the rate was able to extend gains during the day for a New York high of 99.61 before settling back a bit. Obviously volatility was the rule today as the majors first rallied then fell then rallied again to end the day; most noticeable was Cable. First scoring highs overnight against the 2.0100 handle before dropping back to the 1.9900 handle then recovering to the middle 2.0000 handle to make a mess of balance sheets from both sides. No one had a winning day in Cable I am sure of it as the rate crossed a 200 plus point range three times. EURO continued to shrug off news and continued to march higher all day; highs late in New York at 1.5832 after grinding higher all day with no let-up. Traders say that the bearish USD sentiment has returned in force and the fact that the EURO has recovered so fast after the potential top was in only underscores that the rate will likely test the 1.6000 area near-term. A double-top or perhaps a new lifetime high will likely cause a lot of jawboning but Trichet’s comments today left no doubt in the minds of traders that the ECB will not lower rates anytime soon. In my view, you need to be ready for another round of USD weakness. The USD is set to challenge lows I think.

USD/JPY Daily

R3: 100.00/10
R2: 99.80
R1: 99.50/60
Current Price: 99.26
S1: 98.80
S2: 98.50
S3: 98.20
Rate continues to soften from highs the past 48 hours; traders note that stops under the market helped drive into the lows today but bids as expected at the 98.80 area. Upside is limited for now after the rate failed to build on the 101.00 trade earlier in the week. More likely the rate will consolidate with a lower bias near-term. Tomorrows’ GDP data likely factored-in to prices already so unless a surprise is in the works expect the rate to fall briefly on Wednesday.

EURO/USD Daily

R3: ?
R2: ?
R1: 1.5900/10
Current Price: 1.5830
S1: 1.5750/60
S2: 1.5700
S3: 1.5650/60
Rate powers higher with absolutely no offers in sight; traders expect the rate to test 1.6000 by the end of the week. In my view, the market has gone “euphoric” again and likely will ignore fundamentals as complete bullish fever takes over. Model and momentum accounts active on the bid all day traders say, look for continued volatility and a “but the dip” mentality. Aggressive traders can look for a failure at a new high on huge volume and turnover but 1.60 looks almost certain.


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Forex Daily Analysis

Overnight Asia/Europe

• USD two-way
• Opens New York better
• Year-end drives Tokyo trade

Today’s Economic Reports

• 8:45 AM CDT Chicago PMI forecast 46.7

Looking Ahead

• 9:00 AM CDT Tuesday ISM Index forecast 48.2
• 7:00 PM CDT Tuesday Japan Tankan report

Summary
The USD is firmer to start New York this morning after opening on the weak side in Asia. USD/JPY rallied briefly as year-end needs favored short-covering and book-squaring but once the year-end buying was over the Greenback feel back to unchanged; the other majors were firmer into the start of European trading. Traders report volumes were light but it was still enough to help the USD extend its range against GBP; Cable falling back to the 50 bar MA at 1.9812 low print on the back of disappointing UK data. Trader’s note that the Sterling crosses were under pressure overnight and that contributed to the weakness in GBP to start the week. Many traders also note that the sentiment is turning to “sell rallies” in Cable suggesting that the rate will suffer more losses ahead. EURO is two way inside established ranges with the “usual suspects” on the bid/offer. Traders note that hawkish rhetoric the past few days has emboldened the bulls even with the rate sitting within a short distance from all-time highs. Sellers were at the 1.5830 area again with a high print to start the week at 1.5836 coming after a cross-driven rally from the Asian lows at 1.5758; stops are likely building in the 1.5850 area and ahead of the previous lifetime high at 1.5880 area. Look for a massive rally to the 1.60 handle if stops above the 1.5920/30 area are triggered; in my view the rate is poised for 1.6100 on an extended technical play but that would be the place to short the rate. Aggressive traders can sell EURO on a rally into new highs. For the most part the USD is trading sideways with a slightly firmer tone to start Monday but I think that caution is advised on the long side. I don’t think the Greenback is recovering just yet; I think there is simply a lack of selling. Today’s Chicago PMI data will likely be USD negative and the USD could fall back from the firm open. This week’s data is also expected to be weak so I would be a cautious buyer of USD on the break into the recent lows if we get them. I think the USD is trying to bottom in here and that when it does it will make the turn. In the meantime, expect two-way action and stops on both sides to get triggered over the next 72 hours.

GBP/USD Daily

R3: 1.9980
R2: 1.9930/40
R1: 1.9880
Current Price: 1.9845
S1: 1.9810/20
S2: 1.9780
S3: 1.9750

Rate finds some support as expected at the 50 bar MA; look for a technical bounce the next 48 hours but as long as the highs remain under the 1.9950 area on a closing basis the shorts are gaining control. Strong sell signals on the daily will need a day or two to confirm so sells strength into the 1.9980 area in my view. Close under the 50 bar MA argues for further declines and large stops likely under the 1.9780 area; big money traders likely to work with “stop close only” orders under the 50 bar MA.

USD/JPY Daily

R3: 100.80
R2: 100.50
R1: 100.20/30
Current Price: 99.57
S1: 99.10/20
S2: 98.50/60
S3: 98.00

Rate continues to consolidate and range-trade within established S/R; rate could be coiling for a sharp move in either direction but the bias is downward in my view. Look for stops above the market to be thicker at 100.50 area and below the market at 98.50 area; I think the bears are willing to cut and run on any strength and the early bulls will bail on any weakness, both sides are nervous I think. Close over the 100.00 area argues for upside break; close under 99.10 for downside.

Forex Analysis by: Forexpros.com written by Jason Alan Jankovsky

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.