Extreme Volatility In Forex Markets

Looking Ahead to Wednesday
All times Eastern (-5 GMT)

• 8:30am USD Trade Balance
• 9:50am USD FOMC Member Duke Speaks
• 10:00am USD Treasury Sec Geithner Speaks
• 10:30am USD Crude Oil Inventories
• 1:30pm USD FOMC Member Evans Speaks
• 2:00pm USD Federal Budget Balance

Summary
Extreme volatility and more two-way action was the rule today as the major pairs whipsawed between highs and lows several times creating havoc for traders across the board. Weaker equities pricing in response to Tres. Sec. Geithner’s plan to bail-out the banking sector suggests that USD bulls are not convinced that the plan will work. Geithner’s plan was long on rhetoric and short on concrete plans suggesting that more rhetoric will be needed before the trading community swallows the plan; apparently the government believes the more it talks the more work gets done.

Big movers today were the USD/CHF and the GBP; Swissy rallied to a high overnight at 1.1783 before breaking lower and making a low print after the London fix at 1.1503; traders note stops under the 1.1470 area in size helped to break the rate lower. GBP fell off its highs from around the 1.4880 area and gradually sold-off until liquidating stops around the 1.4750 area fired off; the rate fell to a low print at 1.4456 making a range of five handles on the day. Trader’s note that in all pairs the volumes were thin but that didn’t stop technical trade at all.

Dropping to low prints in New York USD/JPY fell to 90.12 testing the technical breakout seen during the short-covering rally last week; lack of follow-through higher likely encouraged a round of selling and a close under the 90.50 area likely to encourage more outright selling in my view. Traders note that stops were in -range and more likely under the 90.00 handle.

USD/CAD rallied to a high print at 1.2495 after dropping like a brick to the 1.2147 area; first stops one way and then the other kept trades on their toes through the session. Additionally, the rate was attracting technical buyers on a potential close back above the 50 day MA; likely more bids to be seen but the USD is very two-sided and the rally is potentially a bull trap.

EURO had a repeat performance from yesterday; high prints at 1.3076 above the 1.3030 area but then fell back hard to push under the 1.2880 area for a low print at 1.2808. Traders note the rate was taking cues from GBP and cross-spreaders and likely more losses are on the way with a second close under the 1.3030 area. IN my view, today’s volatility and whipsaw underscore how nervous the markets are. Today’s news from the US and the vote of no confidence seen in the first view minutes suggest more volatility is brewing. Look for continued two-way action, big ranges and more whipsaw.

GBP/USD Daily

Resistance 3: 1.5000/10
Resistance 2: 1.4980
Resistance 1: 1.4920/30
Latest New York: 1.4484
Support 1: 1.4320
Support 2: 1.4250/60
Support 3: 1.4200

Comments

Rate two-way again overnight, opens New York better but reverses into new lows late after Geithner remarks. Technical trade the rule to start the week with cross-spreaders holding GBP firm. Rate needs to hold above 1.4700 area to keep bulls happy. Statement suggests that the BOE is not happy with a lower GBP. Traders note stops and active buying above the 1.4480 area and the rate rallies to highs above 1.4930 area. Tech resistance now at 1.5000 area likely to cap near term but stops are building above and the 1.5000 handle is a big psychological number. 23 year lows are very likely to hold on any break. Two-way action continues suggesting that shorts are aggressively adding and longs are trying to find a bottom. Rate trading on technical’s now. Spillover from EURO likely but modest.

Data due Wednesday: All times EASTERN (-5 GMT)
4:30am GBP Claimant Count Change
4:30am GBP Average Earnings Index 3m/y
4:30am GBP Unemployment Rate
5:30am GBP BOE Gov King Speaks
5:30am GBP BOE Inflation Report

EUR/USD Daily

Resistance 3: 1.3080
Resistance 2: 1.3020/30
Resistance 1: 1.2990/1.3000
Latest New York: 1.2872
Support 1: 1.2750
Support 2: 1.2700
Support 3: 1.2680

Comments

Rate follows GBP higher and clears stops above the market and scores the 1.3000 handle mid-day but fails into the close; likely spillover from weakness in GBP. Stops and active buying over the 1.3040 area traders say; those were the late buyers I think. Rate appears to be ready to close on the 1.2900 handle; holding 1.2980 area in early New York. Aggressive sellers likely to try and cap above key 1.3030 area; failure to hold 1.2900 today likely to signal a further break back to 1.2700. The dip is a buy opp but be nimble. Cross-spreaders likely pressure as crosses are unwound. Close above 1.3030 needed for further upside until then rallies likely to be sold into support around 1.2620/30 (?).Bulls are still attempting to find a bottom. 50 bar MA failed now likely to offer resistance and a close above suggests the bottom will be in. Technical levels around the 1.2920/50 area now likely to offer resistance so expect two-way action and consolidation underneath.

Data due Wednesday: All times EASTERN (-5 GMT)
2:00am EUR German Final CPI m/m

Disclaimer:
Trading Futures and Options on Futures and Cash Forex transactions involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.

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