The USD is mixed to start New York this morning after trading two-way overnight. A minor holiday in Asia kept volumes light but the USD remained under pressure from Friday’s close. Importers were seen buying USD/JPY as concerns about higher commodity prices for raw materials, especially crude oil, kept manufacturers nervous to start the week.

Model account demand was also seen and the USD/JPY traded to a high at 105.87 through European trade before settling back a bit as crude prices fell into late morning in Europe. Cross-spreading for Yen from Sterling and EURO helped support the USD a bit as well but traders note that the USD/JPY continues to trade higher despite weakness against other pairs and are cautious about shorts.

EURO rallied on follow-through from Friday for a high print at 1.5845 but failed to take out a reported option barrier at 1.5850; traders expect the upside to be challenged through the 1.60 handle and advise buying dips. Higher-than-expected UK inflation data helped to fuel a rise in the GBP overnight; all measures of the data continued to point to high inflation y/y.

High prints in the GBP were at 1.9796 and again cross-spreaders for Sterling-Yen helped to support the move. Swissy met the downside objective for the first break lower at the 1.0150 area; low print at 1.0147 before some profit taking by the shorts was seen.

Traders note that the USD/CHF has made a technical breakdown on the daily charts and despite lower Gold prices than the last time USD was at this level more losses are expected. In my view, the two-way action seen overnight with the downside bias into technical objectives indicates that the Greenback is beginning to settle down from the panic seen late last week. I expect that pullbacks/rallies in the USD will be offered at previous technical levels and as long as the sentiment remains for a weaker US economy through the third quarter of 2008 I think we can expect to see the USD continue lower and test for 2008 lows. Last week’s sharp break is telling us something and we need to go with it. Look for the next rally in USD as a selling opportunity.

Those who held the EURO longs into the objective should be flat now after having sold 1.5800 even. Look for more longs in EURO this week.

Overnight Asia/Europe

• USD mixed on follow-through
• Model accounts buying USD/JPY
• More losses expected later in the week

Today’s Economic Reports
All times EASTERN (-5 GMT)

• 10:00am USD Pending Home Sales m/m -1.0%

Looking Ahead to Tuesday
All times EASTERN (-5 GMT)

• 8:30am USD Trade Balance -58.2B
• 10:00am USD IBD/TIPP Economic Optimism

Forex Analysis by Jason Alan Jankovsky at ForexPros.com. For more details about Forex Trading and Tips for decent earnings through Forex Trading, Please check http://www.forexpros.com