Today's US Dollar Trading

• US Balance of Trade better than expected helps rally USD

• Overnight volumes lighter

• USD/JPY fails to follow through while other pairs fall

Overnight Preview

• Look for some follow-on buying of USD

• More US data due tomorrow

Looking Ahead to Wednesday

All times EASTERN (-5 GMT)

• 8:30am USD Core Retail Sales m/m

• 8:30am USD Retail Sales m/m

• 8:30am USD Import Prices m/m

• 10:00am USD Business Inventories m/m

• 10:30am USD Crude Oil Inventories

• 2:00pm USD Beige Book


The USD continued to grind higher finding light stops in thin volume as the Majors retreated during New York trade. As equities sold off after the release of better-than-expected Balance of Trade data this morning USD/JPY rose to 89.89 high print before dropping back slightly to hold back above the 89.00 handle for most of the day. High prints were only challenged once as the rate was unable to hold the 89.00 handle into the close suggesting that short-covering has not provided enough impetus to hold the rate firm off the 2008 lows; traders now expect the rate to challenge the 87.00 handle near-term before making for a new 2009 low. In my view, the rate will likely make lows for the year soon but I expect a short-covering rally to squeeze out the late shorts first. GBP continued to drop as cross-spreaders continued to buy the EURO/GBP rate; low prints in GBP at 1.4475 as stops under the 1.4520 area triggered. Traders note volumes remained low despite the interest from the sell side. EURO continued to drop as well following GBP lower for a low print at 1.3140 with stops under the 1.3200 and 1.3180 area triggered; traders again expect lower prices with the next technical target near the 1.3000 area. Both EURO and GBP are under technical pressure now that important tech levels fell today; aggressive traders who are looking to get long should hold aside near-term and wait for the next tech level in both pairs. USD/CHF is holding under tech resistance at the 1.1250 area with a high print at 1.1254 before dropping back under the 1.1200 handle; upside resistance appears firmer in this pair. USD/CAD failed at 1.2350 area with a high print at 1.2342 before dropping back under the 1.2300 handle and is a full big figure under at 1.2243 into the close. Traders note that the tech picture looks more toppy in the minor pairs suggesting that the USD may trade sideways for a day or two before a pullback is attempted. For the most part, today's USD action was on lower volume despite larger volume around the release of US data this morning. In my view, a low volume rally is usually followed by a pullback of some kind but with USD sentiment still firm into the start of the year more upside may be in store; the USD has some serious resistance ahead and it would be reasonable to expect a pullback from recent highs if we return to there. Look for the USD to follow through with more gains overnight and then a return to two-way action as cross-spreaders continue to sell GBP across the board.