After a low-volume sell-off this morning to trade at the worst levels of the day the USD rallied back hard… … to run stops and squeeze shorts all day into the close.

Traders note that volumes increased dramatically once the
reversal began to gain momentum and across the board the USD rallied through
resistance to close at some critical numbers for the USD bulls. Cable
tracked EURO lower as expected but found large stops resting in the
1.9930/40 area and traded to a low print at 1.9894 briefly before holding
above the 1.9900 handle but well below the trigger point for the stops. EURO
had a similar day eventually finding stops under the previous week's low at
1.5780 area for a low print at 1.5756 before bouncing; the rate unable to
regain the 1.5800 handle into the close making for a potential reversal
today. Traders note that with the increase in volume on the rally for the
Greenback it is possible that the USD has put in the low for the week; the
majors have all completed minor reversal patterns suggesting the same.
Although there was a bit of profit taking by the longs this afternoon the
USD/JPY held onto solid gains above the 107.00 handle and closes around the
200 bar MA; stops were elected above the 107.20 are and high prints at
107.45 before a drop in volume and a fall back to the 107.10/20 area.
Traders note that the rate has closed at the 200 bar MA which has ignited
volatility in recent trade and more upside is expected to be sold with some
traders suggesting offers ready at the 107.80 area. Today's rally and test
of the 107.50 area suggests that the USD has more upside ahead before a fall
back making the ranges the Greenback has a bit wider and subject to more
whipsaw. In my view, the USD has shown enough strength to look for another
add point on the current open trades. I think aggressive traders can look to
sell the GBP and the EURO around the closing levels today and look to buy
more USD/JPY tomorrow after the Asian session. If oil continues to weaken
early in Asia I think the USD/JPY could advance into reported stops above
the 107.80 area and possibly challenge the 108.00 handle for the day; an
excellent short potential I think. For tonight I look for two-way
consolidation with a better bias for the USD.

GBP/USD Daily

Resistance 3: 2.0120

Resistance 2: 2.0100

Resistance 1: 2.0080

Latest New York: 1.9905

Support 1: 1.9880

Support 2: 1.9840/50

Support 3: 1.9820

Comments

Sell more into the close, rate drops after low-volume rally stalls. Stops at
2.0050 area, volumes very light. Traders report interest on the sell side
from large names and Asian Sovereigns. Rate tracking EURO as expected but
unable to break out either way yet. Hold shorts; look to add on further
weakness below the 200 bar MA. ADD today for aggressive traders. Bids under
the 1.9950 area likely cleared, stops likely now after upper stops cleared.
Offers from large names traders say; if 1.9950 fails on the close it could
be a big drop. Traders expect GBP to track EURO through this week. Continue
to expect a lot of cross-trading.

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

4:30am GBP MPC Meeting Minutes

4:30am GBP BBA Mortgage Approvals

6:00am GBP CBI Industrial Trends Orders

EURO/USD Daily

Resistance 3: 1.6000

Resistance 2: 1.5980

Resistance 1: 1.5950

Latest New York: 1.5769

Support 1: 1.5750

Support 2: 1.5700

Support 3: 1.5650

Comments

Rate still two-way and extends range to start today; stops above the
1.5900/10 area triggered this morning. Try for highs on very low volume.
Aggressive traders can ADD on this rally as volumes are low and this might
be a head-fake. Rate closing under the 1.5800 area is another ADD, hold
shorts and let it work. Stops under the 1.5800 area likely in size; expect a
sharp break and a close under the 1.5800 area. Large names on the offer
reported into the highs, look for a top to form. Major support at the 1.5580
area and slightly below. The 50 bar MA likely to offer support should the
rate fall back; bids will likely be in the 1.5580 area or so on any
meaningful correction; which is a long way away at this point. Exponential
reversal still valid.

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

2:45am EUR French Consumer Spending m/m

4:00am EUR Italian Retail Sales m/m

5:00am EUR Industrial New Orders m/m

Analysis by: http://www.Forexpros.com – written by Jason Alan Jankovsky

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