Today’s USD trading offered a bit of a surprise as Fed Chair Ben Bernanke spoke openly about the desire for a higher USD on world markets. Initially sparking a massive short-covering rally the comments panicked some traders into aggressive buying.

Better-positioned traders used the rally to open aggressive shorts or to add to existing shorts as the resulting rally failed to trigger any technical reasons to hold long USD. In fact, quite the opposite in my view. With the highest single volume seen in weeks on the day, none of the major pairs advanced beyond any near term technical resistance or support.

As I mentioned this morning, the entire move was a sucker play and a bull-trap. Less-experienced traders panicked into a long USD position only to be caught in the market at the close with no gain. Although the ranges were impressive, the USD failed to hold gains across the board. High prints were sold and never challenged twice suggesting that the rates had no follow-through interest past the first rush of panic. For the record, GBP fell back to the 1.9600 area; low print at 1.9604 before sovereign demand emerged and the rate rallied back to close above the 1.9630 area making for a technical bottom.

EURO fell through stops for a low print at 1.5410 but found solid bids to post a late rally back to the 1.5465 area. USD/JPY rallied on stops and active buying for a high print at 105.57 but found large offers and fell back under the 104.80 area on the close making for a large selling wick on the day. Swissy whipsawed as well, high prints at 1.0492 before dropping back to close a full handle lower at 1.03895 area.

Across the board, the USD whipsawed everybody and once the dust settled—there was no change to the big picture making today a great day to sell USD. Look for tomorrow’s ADP private payrolls data to be unfriendly to the USD and the sell-off to resume in earnest.

Today’s US Dollar Trading

• Bernanke comments roil the USD, active buying lifts into resistance
• Volumes die after initial lift
• USD falls back late to reverse gains.

Overnight Preview

• USD likely to drop further overnight
• Expect two-way action

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

• 7:30am USD Challenger Job Cuts y/y 27.4%
• 8:15am USD ADP Nonfarm Employment Change -30K
• 8:30am USD Nonfarm Productivity q/q 2.5%
• 8:30am USD Unit Labor Costs q/q 2.0%
• 10:00am USD ISM Non-Manufacturing Composite 51.0
• 10:35am USD Crude Oil Inventories -8.8M