Today’s US Dollar Trading
• Big news is Fed rate cut, 75 BP
• Markets are “disappointed”
• USD begins rally
Overnight Preview
• Look for more USD short-covering and book squaring
• Volumes likely to surge if close-in stops hit in Asia
Looking Ahead
• No real news until Friday’s Philly Fed forecast -18.0
Summary
The USD is gaining ground making highs on the day against several pairs as the markets react to a “disappointing” 75 BP rate cut by the FOMC. Market gurus were touting a 100 BP rate cut due to the liquidity “crisis” but in my view, that was a reactionary point of view after the USD’s decline on Monday and the panicky nature of the market. Cooler heads are prevailing as a bout of short-covering is lifting the USD into the best levels of the day; Cable is dropping to new US lows as the selling takes hold. GBP highs just prior to the rate announcement at 2.0276 making for a huge range in the pair but heading into the close the rate is trading back under the 2.0150 area leaving a large selling wick on the day’s action and generating a “strong sell” signal. Traders note that the buying ahead of the news was e-platform accounts and CTA type accounts who are traditionally late to the party; stops close in under the 2.0200 handle helped break the rate lower. EURO has completely reversed from earlier highs above the 1.5800 handle; traders note that official and semi-official selling above the 1.5800 handle helped keep the rate in check until the news. Making lows on the week under the 1.5700 handle for a low print at 1.5666; EURO has found stops close in as well but a slight bid tone remains most likely from stubborn longs traders say. Most technical indicators in all the majors are over-bought and EURO making lows on the week after the news is an obvious clue that a correction is beginning in my view. USD/JPY is roaring back making a two-bar reversal and high prints back over the 99.00 handle at 99.51 as stops are triggered. The rate looks set to regain the 100.00 handle later today and in Asia you can expect more follow-on buying as the Japanese have been large buyers of USD the past two week on the break lower. In my view, the Fed easing was “baked in the cake” and the USD rally after the news confirms that the oversold USD is starting a relief rally. Look for the USD to continue firming up overnight and to end the week stronger across the board. Aggressive traders can buy USD across the board on a minor dip the next 24 hours.
EURO/USD Daily
R3: 1.5820
R2: 1.5780
R1: 1.5720/30
Current Price: 1.5685
S1: 1.5650/60
S2: 1.5600/10
S3: 1.5580
Rate completes an inverted hammer formation and marks new weekly lows from an inside range day; classic images of a failed high in my view. Close in stops under the Monday low triggered but bids mixed in for an initial bounce. Aggressive selling likely overnight as late longs are forced to cover back and early shorts press their advantage. More downside is likely and aggressive traders can sell the rate on any bounce. Look for continued weakness ahead of Philly Fed Friday.
USD/JPY Daily
R3: 100.80
R2: 100.30/40
R1: 100.00
Current Price: 99.36
S1: 98.80
S2: 98.20/30
S3: 97.80
Rate completes a two-bar reversal adding an exponential reversal signal; good signs of an extended correction in the works. Rally on stop driven trade likely to take a few days as late shorts will need time to take their beatings. Stops likely over the 100.50 area in large size as that was where the sentiment turned “really negative” last week. Rhetoric likely to drive additional buying as early longs are encouraged by BOJ and other Asian officials “welcoming” the fed move.