monday and tuesday outlook

• USD starts firm in Asia, weakens into Europe
• G-20 seen as a disappointment
• Volumes light and technical trade continues


Today’s Economic Reports
All times EASTERN (-4 GMT)
• 8:30am USD Empire State Manufacturing Index
• 9:00am USD TIC Long-Term Purchases
• 9:15am USD Capacity Utilization Rate
• 9:15am USD Industrial Production m/m
• 1:00pm USD NAHB Housing Market Index


Looking Ahead to Tuesday
All times Eastern (-4 GMT)
• 8:30am USD Building Permits
• 8:30am USD PPI m/m
• 8:30am USD Core PPI m/m
• 8:30am USD Housing Starts


Summary
The USD is mixed to open New York today after starting mildly better in Asia overnight; traders note initial disappointment from the G-20 meeting which announced nothing new and appeared to be simply a re-hash of the current economic situation created a brief push higher for the Greenback. After testing previous resistance levels across the board the USD began a slide through European trade and is weak at the start of New York with the exception of USD JPY. The rate is still holding the 98.00 handle after testing the 98.50 area of reported supply with stops noted above but offers continue to hold the rate back into an inside-range day so far. Forex traders note firmer equities were adding a bit of lift to the pair but overall volumes are light. High prints at 98.51 with lows on support at 97.54; option expiries today may be helping to hold the rate around 98.00 area. USD/CHF is lower with lows at 1.1809 and holding 1.1820 area in early New York; high prints at 1.1915 were offered by technical traders in light volume. Should the rate fail to hold the 1.1800 handle the next 24 hours I think a case can be made that the rally to 1.1970 was a false break-out as there has been no follow-through. USD/CAD is weaker holding 1.2660 area after low prints at 1.2643; traders note stops under the market were around the 1.2650 area but bids supported suggesting buyers are still there on dips. High prints at 1.2797 were under the 1.2820 resistance area suggesting more technical trade in the pair. EURO has rallied steadily overnight with high prints in early New York at 1.3047 triggering stops above the weekly high around 1.2960 area with aggressive buyers helping the rate firm above the 1.3000 area; traders note large names on the bid on the dips suggesting more accumulation. Aggressive traders can look to lighten up on open longs for a possible correction from the 1.3030 area. GBP high prints at 1.4232 lifting to overhead resistance around 1.4250 before falling back a bit; traders note cross-spreaders for GBP crosses adding to the upside momentum. If the rate can hold above 1.4200 analysts suggest a test of the 1.4400 area is in view. In my view, the USD continues to work on a top but with the major pairs now trading at or through overhead initial resistance a correction would be reasonable to expect. Aggressive traders can sell a rally in the USD this week if economic news is seen as USD-supportive; I don’t think the Greenback has enough bid interest to hold onto this 3-year high. Flight-to-quality buying is beginning to lighten up as progress is being made on the economic issues and sentiment is beginning to change. Although the economic solutions probably won’t make a real difference in the long run I think the perception that work is getting done is helping to alleviate fear and panic buying of USD. Look for the Majors to continue two-way but pullbacks should be brief and hold above support areas.


GBP USD Daily

Resistance 3: 1.4350
Resistance 2: 1.4320
Resistance 1: 1.4250
Latest New York: 1.4170
Support 1: 1.3860
Support 2: 1.3780
Support 3: 1.3720


Comments
Rate holds gains and makes new high overnight; stops seen above weekly highs around the 1.4050 area. Tests support on the 1.3800 handle and attracts solid bids traders say. Lows likely remain secure. Reversal off weekly lows a positive technical but the volume needs to come up and I think the shorts have yet to bail as a group. Traders report stops in-range adding for two-way action. Long-term tech resistance now at 1.5000 area likely to cap near term but stops are building above and the 1.5000 handle is a big psychological number. 23 year lows are very likely to hold on any break with long-term support at 1.3500 area now in play. Two-way action continues suggesting that shorts are aggressively adding and longs are trying to find a bottom. Short squeeze back on the board I think.
Data due Tuesday: All times EASTERN (-4 GMT)
5:30am GBP DCLG HPI y/y
4:10pm GBP BOE Gov King Speaks


EUR USD Daily

Resistance 3: 1.3100
Resistance 2: 1.3080
Resistance 1: 1.3050
Latest New York: 1.3035
Support 1: 1.2850
Support 2: 1.2720
Support 3: 1.2680


Comments
Rate follows GBP in two-way action, holding support now above the 1.2880 area. Upside stops triggered on the move over 1.2950/60 area with new buying coming in above 1.3000 area. Overhead resistance is thick up to 1.3100 area so a pullback might be in the works. Aggressive traders can liquidate some longs above 1.3000 area and hold base positions. Traders note big names on the buy side on dips overnight; semi-officials buying 1.2900 area. Close above key 1.3030 area needed for further upside until then rallies likely to be sold so expect more two-way action. Bulls are still attempting to find a bottom. Forex signals around the 1.2920/50 area now likely to offer resistance so expect two-way action and consolidation underneath.

Data due Tuesday: All times EASTERN (-4 GMT)
6:00am EUR German ZEW Economic Sentiment
6:00am EUR ZEW Economic Sentiment
3:15pm EUR ECB President Trichet Speaks

Join me at 7 am eastern time for the start of the US session