The USD continued to consolidate today reaching highs against the majors in early New York but failing to advance into key bullish levels. The majors recovered after the London fix rising off lows and in some pairs flirting with highs into the close. Today's PPI and Housing Data was benign helping to underpin the possibility that inflation is not a problem and housing is beginning to recover but more data will be needed according to most analysts. Aggressive traders are suggesting that a positive response for Wall Street today signals that investor confidence is beginning to turn positive from neutral or negative.

Should that be the case moving forward the "flight-to-quality" buying of USD will likely end and underlying fundamentals will probably begin to weaken the USD into the end of month at least. Traders are suggesting that the possibility of China reducing its holdings of US debt and curtailing their purchase of US debt moving forward works against the USD near-term; time will tell if a larger fall in the USD is likely but for now sentiment is turning neutral for the Greenback. GBP fell to a low print at 1.3963 missing large stops said to be resting under the 1.3940 area and the rate recovers t the 1.4050 area into the close. Lifting EURO with it, EURO has regained the 1.3000 handle and is pressuring highs at 1.3034 into the close with a positive tone noted by traders. Overnight action will likely see a test of the weekly highs at 1.3070 area and traders note stops from large shorts likely in the 1.3080 and above areas. A push to 1.3120 will likely result in short-covering adding to the underlying positive tone; traders note RHS interest in both EURO and GBP into the London fix.

USD/CHF is flirting with lows on the day at 1.1811 and a late break would likely trigger close-in stops into the start of Asia tonight; traders note that volumes have remained subdued as large players have already likely sold into the rally this week and are sitting tight leaving only small time frame traders on the bid. USD/CAD has failed at the 1.2700 handle into the close after making highs at 1.2766 early; the rate is still within striking distance of the stops said to be resting in the 1.2660 area and 1.2620 area. The only rate to hold gains on the day of any size is USD/JPY trading to a high print at 98.98 before dropping back to the 98.40 area late in the day. Exporters remain on the offer above the 98.50 area and the failure to score the 99.0 handle today is likely a psychological negative to the bulls.

Expect stops to be rolled-up closer to the 98.10 area overnight increasing the possibility of a stop-driven long-liquidation break. With the strong bullish sentiment combined with a failure at the recent highs a one-way liquidating break is increasingly likely. Look for the USD to continue in two-way trade with a weaker bias. Tomorrow's data will likely be overshadowed by the FOMC announcement and the BOJ rate decision overnight. 

Today's US Dollar Trading

• USD remains two-way after early strength
• Some pairs reverse to flirt with highs
• Large stops still out of range

Overnight Preview

• Look for USD to remain two-way
• Likely quiet ahead of CB rate announcements

Looking Ahead to Wednesday
All times Eastern (-4 GMT)

• 8:30am USD Core CPI m/m
• 8:30am USD CPI m/m
• 8:30am USD Current Account
• 10:30am USD Crude Oil Inventories
• 2:15pm USD FOMC Statement
• 2:15pm USD Federal Funds Rate

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