U.S. Dollar Short-term Bounce Before Next Leg Lower

GBP continues to trade higher with high prints at 1.4628 and holding the highs at the start of New York; low prints at 1.4460 also attracting buyers.

USD/JPY continues to firm better than the other pairs suggesting that the bulls are still buying the correction. High prints at 96.80 likely to be attracting exporters in New York with the lows at 95.39 opening with a bid tone in Asia. If the push higher is still corrective then the 96.80 area is likely to draw sellers as the stop-driven break last week started in this area.

USD/CHF low prints overnight at 1.1169 were again under the 200 day MA and attracting buyers but the rate remains under pressure in early New York; high prints at 1.1278 are continuing to attract sellers with stops likely around the 1.1320 area now building. Traders continue to remain wary of SNB intervention but so far no hints at all of support for the CHF.

USD/CAD is lower after high prints at 1.2404 again failed to hold above the 1.2420 area; low prints at 1.2297 with the rate holding under 1.2320 in early New York. In my view, the USD is continuing to correct from the recent three-year highs and another leg lower is likely as the key technical support areas in most pairs are under threat again to start the week. If the majors can continue to advance in solid two-way action then it is a fair bet the USD buyers are thinking the dip is a buying opportunity and the bears are pressing their advantage.

Short-term traders likely will be looking for a bounce in the Greenback and will likely have stops in-range making for potential whipsaw. Larger stops are likely building on both sides of the market as longer-term players continue to work the market from the short side in my view. Look for more two-way action today and tomorrow as the economic calendar is lighter until later in the week. The majors will likely cover the same ground twice but longer-term traders can hold longs if you have them; I don�t see the USD recovering easily before another leg lower near-term.

GBP/USD Daily
Resistance 3: 1.4730, Resistance 2: 1.4700/10, Resistance 1: 1.4650
Latest New York: 1.4620, Support 1: 1.3860, Support 2: 1.3780, Support 3: 1.3720

Comments
Rate firms again overnight; upside extends to new weekly highs. Overhead resistance now at 1.4650 with the 1.4700 handle likely to trade the next 24 hours. Traders report stops likely over the 1.4710/30 area. The door is open to a rally back to the 1.5000 area. Some in-range stops driving some trade over the 1.4500 area. Lows likely remain secure. The volume needs to come up and I think the shorts have yet to bail as a group; that may be starting in earnest now. Traders report stops in-range adding for two-way action. Long-term tech resistance now at 1.5000 area likely to cap near term. Two-way action continues suggesting that shorts are aggressively adding and longs are trying to find a bottom. Next upside target is 1.4800 area, downside is near support at 1.4250 area
Data due Tuesday: All times EASTERN (-4 GMT)
5:30am GBP CPI y/y
5:30am GBP BBA Mortgage Approvals
5:30am GBP Core CPI y/y
5:30am GBP RPI y/y
5:45am GBP Inflation Report Hearings
11:30am GBP BOE Gov King Speaks
2:30pm GBP MPC Member Blanchflower Speaks

EUR/USD Daily
Resistance 3: 1.3980, Resistance 2: 1.3820, Resistance 1: 1.3740
Latest New York: 1.3646, Support 1: 1.3400, Support 2: 1.3350, Support 3: 1.3300

Comments
Rate follows GBP in two-way action and holds gains but is not advancing as aggressively yet. Stops likely building above the 1.3740 area. Upside stops likely cleared in size and if the rate can close above 1.3650 area more upside is likely. Overhead resistance above 1.3350 area negated so a pullback to there would also be a strong buy. Traders note big names on the buy side on dips overnight; semi-officials and model accounts buying above 1.3400. Russians seen on the offer overnight in Europe. Bulls are likely in control of the market and any significant pullback is a buying opportunity in my view. Expect two-way action.
Data due Tuesday: All times EASTERN (-4 GMT)
4:30am EUR German Flash Manufacturing PMI
4:30am EUR German Flash Services PMI
5:00am EUR Current Account
5:00am EUR Flash Manufacturing PMI
5:00am EUR Flash Services PMI
10:00am EUR Belgium NBB Business Climate