The USD continues to advance this morning after Friday’s sharp spike higher left traders scrambling to cover shorts; the heavily short USD is likely to continue advancing through the week as the potential change in sentiment will have far reaching implications for many markets all that have focused on a weak USD for the main impetus. Traders note that large names were on both sides of the Greenback overnight as liquidation by the shorts was offset by the “sell corrections” crowd. Most likely the weakness in Gold will continue to underpin the Greenback through the day today as Gold is down $25.00/OZ overnight. GBP has broken key support at 1.6380 area failing to hold support at 1.6420 as many analysts had expected; low prints at 1.6324 in early New York are suggesting a test under the 1.6300 handle may be in the works today. High prints at 1.6515 failed to attract any bids underlying the corrective tone of the market; traders note a close under the 50 day MA sets the stage for a deeper pullback. EURO also under pressure dropping through support at 1.4820 and 1.4800 for low prints at 1.4756 before bouncing but traders note a clear break of the 50 day MA is likely to set-up a deeper pullback to test the 1.4700/1.4680 area near term. High prints at 1.4905 in light volume. USD/JPY testing upside resistance after a slight pullback overnight dropping under the 90.00 handle for a low print at 89.70 before rebounding; exporters capped the rally at 90.42 high print in early Asia but the rate appears ready to test the 90.80 area again some desks report. Traders note that the rate is well-bid despite the huge rally last week suggesting that the upside may be tested this week but analysts note the rate made two-weeks of gains in less than two-days last week suggesting an overbought condition may contain the upside. USD/CHF continued to advance after dropping a bit for a low print at 1.0136 before advancing during European trade; high prints at 1.0244 cleared stops over the 1.0220/30 area and the rate is firm into early New York. Traders note that a technical close above the 1.0250 area opens the door for a deeper move to possibly 1.0330 area. USD/CAD is holding firm but not advancing along with other action elsewhere; low prints at 1.0531 went bid early in Asia but the rate has managed only a 1.0650 high print so far in early New York. Traders note that a move over 1.0660/80 area is needed to break the consolidation tone to the market and with the USD strength elsewhere not showing up in Loonie it is possible that the rate will hold under 1.0660 near-term. In my view, the follow-on action is welcome for the USD bulls but the Greenback has a lot to do before an end to the current bearish sentiment can be discussed. The rally at this point is corrective and will draw sellers on further strength; how the USD handles that pullback will tell more about potential change in sentiment than anything else in my view. Look for the USD to hold firm today and into mid-week; US data due out later may offer more clues to the health of the rally.
