The USD is higher to end New York after a volatile session after the release of US data. Although the Retail Sales data came in about as expected, upwardly revised data from last month sparked a swift rally in the greenback sending it to the best levels of the day. The USD managed to hold gains against the Yen and Swissy but gave back some gains against EURO and Cable to end the day; traders note that volumes were very patchy on the move and order-flow was sporadic and directionless despite the firm pricing.

USD is likely setting up for a rotation lower and the technical picture looks a bit supportive of that view. Cable made a new monthly low at 1.9417 before rotating higher to eventually print 1.9496 for the New York high but well off the European high at 1.9589; traders note the reversal was unexpected after the release of higher than expected UK CPI data this morning. Cable settled around the 1.9450/60 area in quiet trade.

EURO fell in sympathy with GBP as cross-spreaders lifted EURO off the post-data lows of 1.5429 and EURO gained the 1.5500 handle again before settling back as flows became confusing after the London Fix. Traders note that EURO appears to have found a near-term bottom and believe support is firm around the 1.5380/1.5400 area.

The rate will likely draw some short-covering by late shorts this morning during the next 24 hours so expect a continued grind higher ahead of US data in the morning tomorrow. USD/JPY continued to grind higher all afternoon on light volume; making the high for the day ahead of the close at 104.93 touching the 100 bar MA in the process. Sellers said to have plenty of offers waiting at the 105.00 area and it will be important to see if those offers show up overnight in Japan this evening. Given the recent strength in the Yen this correction higher by the USD is likely to attract sellers and the key is how thick they are at this level.

Aggressive traders can look for a short on any further USD strength in my view. Tomorrow is US CPI data and with the recent information tending to support the Fed is not done easing yet, I would expect that a weaker than expected number could ignite a bout of USD long-liquidation in the morning. The market seems prepared for that and recent strength despite weak volumes appears to be an opportunity to sell.

Today’s US Dollar Trading

• USD extends rally during New York
• Flows described as light and disorderly

Overnight Preview

• Look for book-squaring
• USD may have gotten ahead of itself

Looking Ahead to Wednesday

All times EASTERN (-5 GMT)

• 8:30am USD Core CPI m/m 0.2%
• 8:30am USD CPI m/m 0.3%
• 9:15am USD Fed Governor Kroszner Speaks
• 10:30am USD Crude Oil Inventories

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