Today’s US Dollar Trading

• USD gains but off the highs, stops help drive trade

• Volumes still lighter

• Majors hold S/R suggesting more two-way action

Overnight Preview

• Look for continued consolidation in USD

• Next day or two of data likely to drive USD lower

Looking Ahead to Thursday

All times Eastern (-5 GMT)

• 8:30am USD Unemployment Claims

• 8:30am USD Prelim Nonfarm Productivity q/q

• 8:30am USD Prelim Unit Labor Costs q/q

• 10:00am USD Factory Orders m/m

• 10:30am USD Natural Gas Storage


Continued volatility plagued the majors the past 24 hours as the USD continued to consolidate gains earned overnight although signs of topping continue. Overnight news as well as US data this morning failed to extend US gains past early highs seen in New York after the release of ADP private payrolls estimates. Showing another large drop projecting a dip in NFP on Friday, ADP came in at -553K. Although a negative number it was seen as an improvement over December’s numbers; USD got a slight boost on the news but GBP and EURO reversed; EURO making New York highs above the 1.2900 handle at 1.2930 area and GBP making a daily high at 1.4580. Both pairs settled back on the day but did not make lows although EURO dropped all the way back to the 1.2820 area before regaining the 1.2870 area late in the day. High volatility found stops both ways in EURO and GBP as both rates suffered large swings in thinner volumes through the day but held firm into the close. Low prints in EURO at 1.2812 and in GBP at 1.4323 were on technical support suggesting that yesterday’s rally has more to go after both rates held support. Cross-spreaders in both pairs added to the volatility with main interest in Yen. USD/JPY dropped to a low print at 88.81 but rallied later in the day for new highs at 89.79 before finishing mid range around the 89.30 area; dips are being bought and rallies sold suggesting more coiling before a large move in one direction; traders continue to suggest that a short-covering rally is due. USD/CHF rallied off overnight lows for a high print at 1.1639 before dropping back under the 1.1600 handle; the rate has to close below the 1.1580 area to suggest another selling wick and lower potential in my view. USD/CAD fell to a low print at 1.2224 as the other pairs rallied to their highs but recovered one full handle to finish around the 1.2320 area into the close. Traders note that CAD demand related to M&A activity may have been behind the move after the London fix. In my view, today’s volatility in the majors is to be expected as the USD continues to sketch out a top. I think the USD/JPY languishing around the 88.10/20 area before rallying to new highs intraday suggests that late shorts are getting nervous. Today’s drop in equities had no impact on the rate which also suggests that the rate is about ready to rally. Look for the USD to continue sideways with a lower bias into the next two days of data with the main focus NFP on Friday. BOE and ECB meetings with rate announcements due tomorrow with no changes expected but rhetoric to be closely watched during the press conferences.

Forex Analysis written by Jason Alan Jankovsky, featured by