Heading into the close for Monday the USD is slightly mixed as pressure from equities rubs a little shine off… … the bull's horns; most of the major pairs are slightly lower to about unchanged on the day.

Although sentiment remains firm for the Greenback there are signs that the current rally is about to
falter; the biggest indicator is low volume in my view. Most pairs had a
flurry of activity early ahead of the London fix but have since slowed down
measurably from early order flows. Cable is holding firm around the 1.8650
area after making a run for lows but was unable to test the overnight Asia
lows still in place at 1.8624; a late rally was turned back from the 1.8680
area and the rate remains steady in the middle of the range. Traders report
the GBP is still tracking EURO higher and lower but the EURO remaining firm
at the 1.4700 area after a brief spike to fresh New York highs at the 1.4730
area suggest the rate is possibly building for a short-squeeze. EURO has a
load of news due tomorrow which is expected to be neutral-to-bearish for the
rate so depending on how much downside the rate can manage overnight on the
news will likely determine if a run for stops under the 1.4620 area is in
store; if holding longs from this morning around the 1.4700 handle is fine
for now. Tomorrow's US data is likely to cause a bit of volatility as well
so if the EURO can hold current lows after the news there is a good
probability the rate will make a run for high stops likely in the 1.4750
area or higher by mid-week. USD/JPY was under pressure off the highs all day
and made new lows for the day at 109.96 but saw a bit of bids show up to
hold the 110.00 handle; traders note volumes were thin on the move making
for potential volatility near-term. Look for the rate to find stops under
the 109.20 area to be in size and a liquidating break to develop if the rate
can't score a new weekly high above the 110.60/70 area; OK to hold shorts
for now as well. Loonie came off the lows for the day to trade higher as
dropping oil prices continued to attract bids but the rate is showing signs
of weakness in my view; OK to hold shorts with stops currently working. In
my view, the USD is looking a little “toppy” today and if large bids don't
show up overnight or during the news the Greenback is looking vulnerable for
a correction. Look for a quiet overnight session and possibly some follow-on
selling to start Asia; the “buy the dip” crowd will likely support the USD
overnight so expect some two-way action near-term.

GBP/USD Daily

Resistance 3: 1.8780

Resistance 2: 1.8750/60

Resistance 1: 1.8720/30

Latest New York: 1.8640

Support 1: 1.8620/30

Support 2: 1.8600

Support 3: 1.8580

Comments

Rate struggling to hold gains but is off the weekly low from last week;
today's open shows net bid follow-through but some weakness. Look for more
upside this week. Possibly shorts covering ahead of the news due Tuesday.
Rate bouncing off two-year lows and is an excellent buy in my view. Rate has
likely flushed out every long now and shorts will likely take gains soon
leaving the rate vulnerable to a sharp rally. Possible buying from
semi-official names so watch the news. Offers above the market mixed with
stops from late shorts so be ready for whipsaw the next few days. Traders
expect GBP to track EURO through this week. Continue to expect a lot of
cross-trading. Get ready for the rally.

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

NONE

EURO/USD Daily

Resistance 3: 1.4850

Resistance 2: 1.4820/30

Resistance 1: 1.4770/80

Latest New York: 1.4695

Support 1: 1.4670

Support 2: 1.4650/60

Support 3: 1.4620/30

Comments

Stops-driven sell-off scores new low last week but rate bounces smartly
suggesting at least a small interest in bottoming. Failure to hold above the
1.4700 handle likely to draw in late shorts. Traders report large bids on
the drop but volumes died later, lower oil pricing pressures prices all day.
Traders report model/macro accounts continue selling the rate. Traders
suggesting that the rate is vulnerable to a short squeeze. Market is heavily
short now so expect a rally. Larger names buying last week traders say.
Likely the rate has flushed all longs. Aggressive traders can buy this dip
for a return to resistance. Rate continues to track Cable and vice-versa.
Now that stops are cleared a rotation higher is coming. US data this week
likely to be unfriendly so be ready for whipsaw.

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

2:00am EUR German PPI m/m

5:00am EUR German ZEW Economic Sentiment

5:00am EUR ZEW Economic Sentiment

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.