In true Capitol Hill style congress has delayed reaching a firm agreement on
the potential bailout of the US financial system;… … adding conditions and
requirements that promise to derail reaching a solution to the cash-strapped
banking system. Adding fuel to the fire is weak housing data; despite the
fundamental weakness in the overall economy investors bought equities today
driving the DJIA to triple-digit gains led mostly by the financials. GBP
fell sharply once news broke that the bailout plan was “nearing a solution”
but as was discovered later that means “we're talking about it”. Low prints
in cable at 1.8305 making a near-term top in place suggesting that the USD
will whipsaw through the end of the week as all the majors sold off in heavy
trade. EURO low prints 1.4559 drew stops and active selling as late long
threw in the towel and new shorts pressed their advantage. Traders report
volumes were heavy on the move lower suggesting that if lows hold the
resulting buy-back will be huge. USD/JPY led the complex higher as stops
above the 106.30 are and more above 106.60 were triggered for a high print
at 107.03 before aggressive sellers capped the move. In my view the USD is
simply reacting to potential solutions to the uncertainty but the fact is
there will be no resolution before next week leaving the USD vulnerable to
whipsaw. Traders note that smart money is not finding confidence in the US
congress to reach a solution near-term and are either sidelined or looking
to sell USD on rallies. USD/JPY highs were sold heavily as were Swissy and
Loonie. Early lows were bought back hard on technical factors and euphoria
but the advance lost steam as the market ran not a brick wall at the high
prints of 1.0945 and 1.0394 respectively. Some brain-dead congressmen are
trying to add “healthcare” issues to this bill and that will no doubt cement
the world's point of view that no bill will pass by Monday. In my view; it
is time to get short USD and close your eyes. The next rally will be the
last USD strength seen for months and aggressive traders need to be ready to
sell with both hands.

GBP/USD Daily

Resistance 3: 1.8750

Resistance 2: 1.8700/10

Resistance 1: 1.8680

Latest New York: 1.8384

Support 1: 1.8300

Support 2: 1.8250/60

Support 3: 1.8200

Comments

Rate remains two-way overnight, corrects lower in New York. Some selling
pressure seen but rate is likely to press for highs on more bad news.
Aggressive traders can buy the next dip but also look to lighten longs into
the 1.8700 area if it comes. Equities rally but that will fail in my view.
Possible sovereign interest on the rally as semi-officials seen on dips in
both EURO and GBP recently. Some stops triggered along with active buying.
Traders note stops mixed with offers above the market also. Major support
has held for two weeks now, any weakness likely to be bought hard.
Profit-taking bids continue as well. Close above the 1.8500 area for the
week likely argues for another leg higher to end the month. Rate is coiling
suggesting a breakout coming soon.

Data due Friday: All times EASTERN (-4 GMT)

Tentative GBP Nationwide HPI m/m

EURO/USD Daily

Resistance 3: 1.4840

Resistance 2: 1.4800/10

Resistance 1: 1.4770/80

Latest New York: 1.4618

Support 1: 1.4560

Support 2: 1.4520/30

Support 3: 1.4480

Comments

Rate two-way and tracking GBP. Dips are being bought, follows GBP both way
but lots of stops and active buying seen. Traders note stops building above
the market. Light pressure intraday easily absorbed despite fear of
pullback. Weekly high below major resistance and rate is volatile on dips.
Likely support will hold at the 1.4330 area. Some upside drawn from Cable no
doubt. Expect more two-way action with upside bias; traders note the rate is
firm on dips so far despite the uncertainty in the market. Traders report
offers in size being absorbed. Traders suggesting that the rate is
continuing to trade technically. Close over the 1.4700 area to end this week
will make a lot of shorts nervous next week possibly extending a
short-covering rally. Expect a solid higher close for the week. If long,
look to add to positions on any weakness. Likely a dip back to the 1.4300
handle will offer a solid buy opportunity. OK to lighten up on strength.

Data due Friday: All times EASTERN (-4 GMT)

2:00am EUR German Import Prices m/m

All Day EUR German Prelim CPI m/m

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

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