The USD continued to decline today despite good indications that near-term technical levels would hold surprising traders with the speed… … of the move.

All the major pairs fell through key support levels for the second day after traders chose to sell the
Greenback with both hands after yesterday’s larger than expected interest rate cut
by the FOMC . A larger than expected production cut by the OPEC members failed to
inspire Crude Oil to rally lending support to the argument that energy prices will
decline further lending some support for an economic recovery but analysts remind
that is a minor issue against the size of the economic crisis; most likely the
interest rate cut putting the USD as the worlds cheapest currency will outweigh a
rise or drop in commodities prices. For the most part the USD fell to two-month lows
or more against the majors today and more losses are expected as traders adjust to
zero-cost of money and how that will fuel growth and inflation. GBP high print
overnight at 1.5725 went unchallenged in New York today as the rate struggled to
follow EURO higher; low prints at 1.5243 making for nearly a 500 point range on the
day. EURO rallied again blowing through expected resistance areas for a high print
at 1.4438 almost matching the range seen in GBP with a low print at 1.3997; the rate
has now put on more than 20 full handles between current prices and the lows of
October. The volatility is huge and traders remind that stops have been one of the
big drivers the past two days suggesting that shorts have been effectively
eliminated from the markets. USD/JPY failed to hold the previous lows at 88.10 area
for a low print at 87.12 finding stops in size under the previous lows; traders note
that official interest on the bid was seen as well as the unusual step of the BOJ
checking rates. Some analysts suggest that a possible coordinated intervention to
stop the Yen’s rise could be in the works but I would find that highly unlikely as
the BOJ hasn’t intervened since 2004 and conditions are worse now for them. USD/CHF
smashed support for a low print at 1.0745 and closes within 20 pips of the low
suggesting that money is going into Gold; gold prices were sharply higher in Gold as
well today. Traders note that lows today in Swissy are nowhere near support levels
that were expected to offer a bounce and with the speed of the move no one is
willing to get on the buy side just yet; prices could be much lower to end the year.
USD/CAD low prints at 1.1930 were no surprise but the rate has lagged the speed of
the decline seen elsewhere suggesting that the rate may behave more rationally
near-term. In my view, panic was the rule today and traders will likely come to
their senses by the end of the year. The USD is now getting back to more realistic
price levels given the conditions of the economy; a return to lower prices for the
USD is coming but it needs to be organized a bit better. I think the panic needs to
subside and then more reasonable two-way action will result.

GBP/USD Daily

Resistance 3: 1.5800/10

Resistance 2: 1.5780

Resistance 1: 1.5710/20

Latest New York: 1.5500

Support 1: 1.4850

Support 2: 1.4740

Support 3: 1.4680

Comments

Rate struggles to track EURO higher; fails at resistance to make lows in New York
after follow-on buying dries up and EURO/GBP cross reaches new lifetime high.
Toolbox signals a trend sell; aggressive traders can short the rate for the pullback
to possibly test the breakout from 1.5050 area. Spillover from EURO no doubt. Lows
holding at 1.5200/10 area likely has stops below. Stops cleared above Tuesday highs
cleared with sellers taking a stand at 1.5700 area. Cross-spreaders likely keeping
pressure on as GBP/EURO cross holds near lifetime high. Traders note solid two-way
action. Sellers hold control above 1.5500 area so far. Be ready for whipsaw around
news this week as both sides have technical reasons to execute.

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

4:30am GBP Retail Sales m/m

4:30am GBP Prelim M4 Money Supply m/m

4:30am GBP Public Sector Net Borrowing

7:01pm GBP GfK Consumer Confidence

EURO/USD Daily

Resistance 3: 1.4520

Resistance 2: 1.4480

Resistance 1: 1.4430/40

Latest New York: 1.4360

Support 1: 1.3850

Support 2: 1.3780

Support 3: 1.3720/30

Comments

Rate scores another new high during New York trade and holds above technical
retracement; bears take a stand at 1.4180 area and lose. Toolbox signals Strong
Trend sell around current levels but is negated on today’s action. Technical traders
will be looking for a test of the 100 day MA near-term to offer support this time
after blowing through to the upside. Traders note lots of aggressive active buying
getting disappointed. Stops building in size over the 1.3750 area cleared all the
way to 1.4180 area. Traders note some stops within range overnight suggesting longs
are late or nervous. Correction is likely. Likely bulls will lighten up but will
need to see failure at 1.4400 area first I think. Stops likely now around 1.4450
area.

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

4:00am EUR German Ifo Business Climate

4:00am EUR Italian Unemployment Rate

5:00am EUR Trade Balance

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

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