The USD opened Asia firmer overnight and saw the best levels of the day in early trade. Volumes were light and traders report the focus has been more on the state of the US financial system more than Oil or Equities. In early NY trade the USD came under additional selling pressure form a weak round in European dealings, Wachovia Bank earnings were below estimates putting a damper on enthusiasm for the USD. Forex traders note overnight Russian interest on the buy side of EURO while Asian sovereigns were on the offer. Traders also note that CTA-type accounts were on the bid for USD/JPY around the highs at 106.60 area overnight suggesting that the drop to support around the 106.00 area in USD/JPY may have been some close-in stops placed before the Wachovia news; the rally in EURO and GBP also encountered Asian selling into the highs. The USD is on the defensive this morning but the volumes have been extremely light so far with technical S/R holding. Traders note that volatility may have been exaggerated due to thinner conditions and the lack of “real” news; the focus on US financials will likely only be temporary and once “real” news is out later in the week the USD weakness may have been temporary also. Aggressive traders can ADD to open shorts in EURO and GBP this morning as well as BUY USD/JPY; monthly highs in EURO and GBP are holding and with this rally in EURO the non-USD crosses have failed to extend recent gains suggesting a round of book-squaring/profit-taking by the longs is due. In my view, the USD is set to strengthen into the end of the week as this sell-off has been on low volume and can’t really extend losses past technical support levels already seen as attracting bids. Look for the USD to rally later today and into mid-week ahead of US data due Thursday. Of special note is the USD/JPY holding the 50 bar MA on the break this morning; in the past 60 days the 50 bar has tracked 400 points higher while the other averages have remained flat-to-lower suggesting there is near-term strength in the USD.


Analysis Provided by: Forexpros.com written by Jason Alan Jankovsky.