The USD holds on to gains as lower equities and falling Gold prices pushed investors into flight-to-quality instruments lifting USD to better levels against most major pairs. The one exception is USD/JPY which has failed to extend gains for a second day; high prints overnight at 97.92 went unchallenged in New York as did lows  at 96.90 but the rate spent most of the day under the 97.50 area making today an inside range day with a neutral close. Traders note that dips near the 97.00 handle were met with quality bids but the lack of upside follow-through suggests that the rate is topping and due for a deeper correction.

Most analysts point out that the USD DX is at a three year high on lighter volume suggesting also that the USD is near a top near-term. Should the USD/JPY break into stops said to be resting between 96.50 and 96.80 area there could be a sharp break pulling all the USD pairs lower.

GBP fell through stops under the 1.4020 area finding a low print at 1.3955 before rallying out of the hole to trade a full handle higher in late New York around the 1.4070 area suggesting that shorts are still likely to get squeezed. Should the rate score overnight gains near the 1.4300 handle there is a good chance that upside stops have been rolled down closer to the market.

EURO is holding firm above low prints at 1.2544 just under the 1.2600 handle into the close suggesting that shorts could get squeezed as well; traders note that large bids were seen but liquidity was still thin.

Both the ECB and the BOE hold regular meetings this week Thursday on interest rates with most analysts suggesting that a 50 BP rate cut by either back in well-factored into current pricing. Should the EURO and the GBP hold today’s lows by mid-week a “buy the rumor/sell the fact” scenario could develop with both rates adding to the upside to finish the week. US data due this week is heavily focused on NFP data Friday suggesting that poor US news to end the week may discourage the USD bulls after a solid advance to end February.

USD/CHF is holding gains in thin volume with high prints at 1.1798 unchallenged in New York but a test of the 1.1701 lows was seen; the rate finishes mid range at the 1.1750 area making today one of the best closes of the year but analysts remind that the best close of the year was followed by a sharp 400 point break only a week or so ago. If the rate is setting up as it did then it would be reasonable to expect lower action by mid-week.

USD/CAD continued to advance as weak Canadian GDP data suggested more room to the upside scoring a high print at 1.2911; aggressive traders need to be ready to sell the rate on any advance above the 1.2920 area near-term. In my view, the USD is continuing to set-up a top. US fundamentals continue to worsen and flight-to-quality can’t continue forever. Look for more two-way action and be ready to sell rallies.

Today’s US Dollar Trading

•           USD mixed to start Asia, firms in Europe
•           BOK sells USD to support WON
•           Stops in-range in most pairs, tech trading dominates

Today’s Economic Reports

•           USD holds gains against most pairs, stops and two-way action
•           Equities fail at key support
•           US data weaker again

Overnight Preview

•           Look for continued two-way action
•           USD to weaken into mid-week

Looking Ahead to Tuesday

All times Eastern (-5 GMT)

•           8:00am USD FOMC Member Lockhart Speaks
•           10:00am USD Fed Chairman Bernanke Testifies
•           10:00am USD Pending Home Sales m/m
•           All Day USD Total Vehicle Sales

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