Latest Forex Analysis - 20/02/08

Today�s US Dollar Trading

� After a two-way start, the USD weakens
� Closes New York mixed
� Volumes very light

Overnight Preview
� Expect more two-way consolidation
� Book-squaring ahead of US data likely

Looking Ahead
� 7:30 AM CST Wednesday CPI forecast +0.3%, core +0.2%
� 1:00 PM CST Wednesday FOMC minutes

After a quiet start in Asia the USD ended the first full trading day after the holiday on a lower note ending mixed in New York; volumes came to a virtual standstill after the London fix traders say. Although the USD was weaker against most of the major forex pairs, the GBP fell in cross-spreading drifting lower against the USD in the process. Cable was unable to build on early European strength at all today and spent most of the day hovering on both sides of the 1.9500 handle in very light volumes. Traders note that non-USD cross-spreading drove most of the action as the Sterling crosses were sold today for Yen and EURO. GBP/USD finished New York near the lows at 1.9480; low prints at 1.9451. Aggressive traders can sell any strength as a test of the 1.9400/1.9380 area appears likely in my view. EURO fared better and ended the day higher after testing the upside at the 1.4750 area; high prints at 1.4758 before drifting lower. Unable to best that number during New York trade the EURO nevertheless remains firm after closing above the 50 bar MA on Friday and Monday; traders expect a rally into the 1.4810 area to draw sellers ahead of technical resistance but the upside bias remains until then. USD/JPY broke down to test the technical rising triangle that has captivated most players the past three weeks. With more and more technical signals coming up on the buy side the potential for further price declines remains unlikely in my view; I think the rate is continuing to base for another leg higher near-term. Low prints at the 107.20 area were never tested in New York and the close at the 107.80 area suggests a strong buying tail; look for dips to be bought on volume. For the day, the USD put in a rather boring performance not rising enough overnight to inspire aggressive buying and not dropping enough to inspire swelling. Although close-in stops were triggered there was no active follow-through on the day. Look for the USD to consolidate with an upward bias as traders square positions ahead of tomorrow�s US data. Look for CPI to surprise to the upside as that has been the trend the past few releases. FOMC minutes will likely remain a focus due to the large drop in real rates; traders are looking for clues.

R3: 108.50
R2: 108.10/20
R1: 107.80
Current Price: 107.65
S1: 107.20/30
S2: 107.00
S3: 106.80
Rate continues to trade directionless within developing technical picture of the rising triangle, dips are bought on size and rallies sold but rate unable to find stops on either side. Upside said to hold mixed interest until the 108.80 area where offers are said to be thick. Stops are likely under the 107.00 and 106.80 area but support on the rising wedge is strong near-term; dips could be a head-fake. Look for an upside day tomorrow on the release of the news. Most traders likely are selling the rallies.

R3: 1.4810
R2: 1.4780
R1: 1.4750
Current Price: 1.4727
S1: 1.4700
S2: 1.4680
S3: 1.4660
Recent buy signals not negated as expected suggesting that the rate is rotating higher back into resistance after spending no time at lower prices. Aggressive traders can sell on further strength as the bulk of traders see the pair consolidating within established range; not prepping for a breakout. Stops above the 1.4780 area said to be in size but so are offers above suggesting the rate will remain trapped. Stops under the 1.4660 area likely in size as longs may be chasing the market.

Analysis by: Jason Alan Jankovsky in Association with The Forex Edge

Today�s US Dollar Trading

� USD started firmer, ends mixed
� US fundamentals drove trade today
� Cross traders active
Overnight Preview
� Look for more follow-through in majors to test
� Important S/R held so be ready for potential reversal
Looking Ahead
� 9:00 AM CST Thursday Philly Fed forecast -10
Solid two-way action today after US data surprises traders for the most part. Starting this morning with CPI data, an unexpected higher-than-expected +0.4% front number and +0.3% core showed that inflation pressures are still a factor for the Fed to consider. Traders chose to focus on the issue of economic slowdown rather than inflation risks and feel that the potential drop in Q1 GDP argues for further Fed easing near-term. Initially the USD rallied on the news hitting stops on the way and driving the majors into important S/R. Cable started the day weaker from cross-spreading pressures overnight and opened New York on the lows around the 1.9410 area. After the release of CPI the rate fell through light stops for a low print at 1.9360 before bids showed up. Short covering/profit taking helped lift the rate off the lows and the rate continued to build on gains all morning until the release of FOMC data showing a very high agreement to continue with the easing process. Cable rallied into the 1.9400 handle again and back for a high print during New York trade at 1.9445; the area of previous support. EURO had a similar ride today falling all the way under the 1.4630 area for a post-CPI low of 1.4613 before recovering. As the day wore on the rate reversed hard and rallied a full handle to post a high after FOMC at 1.4724 no doubt burning a few order books in the process. USD/JPY had a more conservative day but still remained within established ranges for the entire day. High prints at 108.37 and Asian lows at 107.42 were still within the coiling triangle that has plagued recent trade. Aggressive bids tried to make a run for stops above the 108.30 area but with no one home; the rate fell back but still maintained a firm tone all day eventually closing above the 108.00 handle. Despite that firm close in USD/JPY today many traders are expecting a defensive USD in the days ahead. No follow-through buying and a solid recovery by other major�s pairs suggest that today�s USD strength will be short-lived. Today�s action can only be described as �whipsaw� for most traders and I think a fall back in the Greenback is very likely in the days ahead. Tomorrow is Philly Fed and a negative number will not help the USD�s fortunes near-term. Without a solid round of overnight buying I don�t see the USD holding firm through Friday.
R3: 108.80
R2: 108.50
R1: 108.30
Current Price: 108.17
S1: 107.80
S2: 107.50/60
S3: 107.20/30
Rate continues to hold within coiling triangle as bids continue to be insufficient to trigger large stops said to be resting above the 108.30/50 area somewhere. Today�s high prints found willing offers and more are said to be layered to 108.50 area suggesting that the top may be labored for now. Bids back at 107.20/40 area likely to support again so expect two-way action to finish the week should a retreat develop overnight tonight. Tomorrow�s data may be enough to inspire a round of long-liquidation.

R3: 1.9500/10
R2: 1.9480
R1: 1.9450
Current Price: 1.9414
S1: 1.9380
S2: 1.9350/60
S3: ?
Rate breaks into triple-bottom support and recovers nicely to close above previous support, effectively negating the push lower. Stops triggered on the way down were taken out and no aggressive new selling was seen resulting in whipsaw for the shorts. Stops above the market likely moved close-in; look for an inside range day closing higher tomorrow to wash-out weak shorts set today. Offers above the market likely back at 1.9500 layered to 1.9550 area leaving lots of room for volatility.
Analysis by: Jason Alan Jankovsky in Association with The Forex Edge
Publisher: Forexpros