The USD continued its overnight advance today making fresh highs in most pairs during US trade with the exception of the Yen. Forex traders note that volumes into the highs were light and order flow was patchy suggesting that the USD may be again reaching for an extreme price level before a much-needed corrective break. Stops were the main driver in most pairs as early longs in the majors were taken out; with most pairs rallying back slightly into the close. GBP fell to a new multi-year low at 1.7468 just tagging our stops from longs set this morning; the rate rallied back a full handle from the lows leaving a buying wick suggesting the rate may have finally made an exhaustion low. Traders note that the initial rally to the 1.7977 high was on better volumes suggesting that the rate will remain two-way the next few days as traders attempt to re-set longs and shorts attempt to press their advantage but order boards have been wiped clean after the very large 500 point range today. EURO tracked GBP lower as well eventually breaking under the 1.4100 handle again taking out our longs set this morning; low prints at 1.4053 were on low volume and stop driven. Traders note that speculation is high that the EURO could test below the 1.4000 handle soon but the recent hard fall and lack of relief rally suggest that at the very least shorts will cover on such a move leaving the rate vulnerable to a sharp rally. USD/JPY was unable to rally and ended the day well off the highs and below the 50 bar daily MA. Traders note that the Yen is benefiting from cross-liquidation making the USD/JPY vulnerable to further losses this week. Swissy rallied to clear stops for a high print at 1.1375 on stops but offers were able to cap the move significantly and the rate fell back to the 1.1320 area as enthusiasm for further gains evaporated. In my view, the USD’s response to today’s government-sponsored bailout of the housing market has effectively drawn in more USD buyers but with both price and sentiment reaching the extreme end of the range it seems that today may have put the highs in for the week. Failure to follow-through will no doubt cause many to stand aside that normally would be buyers; look for the USD to soften overnight tonight. Tomorrow’s US data is not expected to be friendly and with the equities market unable to hold gains as well it looks like a massive head-fake for USD strength in my view.

Analysis Provided by: Forexpros.com - Written by Jason Van Jankovsky