Fundys – The big talk heading into the weekend has been the notable divergence in the correlation between the US Dollar and risk aversion. While equity markets have faltered over the past few days, currencies continue to rally against the USD with the FX market still focused on the prospects for global recovery. Also seen hurting the Greenback of late have been questions surrounding the AAA status of the United States. Additionally, there has been talk from many analysts who now see the global recovery on the horizon and look for markets across the board to at a minimum return to pre-Lehman Brothers levels when sentiment was already heavily damaged. The Euro is testing critical psychological barriers at 1.4000 while Aussie and Cable also near key psychological barriers at 0.8000 and 1.6000 respectively. All of the commodity bloc currencies along with Sterling have ascended to fresh 2009 highs against the buck on Friday, with Kiwi and Cad the outperformers. On the data front, the overnight calendar was very light with the only key release coming out from the UK in the form of[B] Q1 GDP[/B] which was as expected. Instead, UK traders were focused on some mixed developments with the OECD announcing that there was no need for a downgrade of the UK’s credit ratings, while the UK Treasury would not release the results of the UK bank stress tests. Elsewhere, in Japan, BoJ Shirakawa caught many investors off guard after saying that the Japanese economy was no longer in a free-fall. The BoJ left rates unchanged at 0.10% and will now accepet government bonds from the US, UK, and Eurozone as collateral. The shortened pre-holiday session of trade could get nasty as markets tend to push on lightened trade. Canadian data takes center stage with retail sales (0.5% expected) due at 12:30GMT. On the official circuit, Fed Chair Bernanke speaks at Boston College Law School graduation at 18:00GMT. Equity futures point to a higher open, while on the commodity front, oil also trades back up and gold is flat.
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Techs - EUR/USD eyes a retest of critical psychological barriers by 1.4000 over the coming session. However with daily studies overbought, any rallies above the figure should used as good sell opportunities with 1.4065 seen as an ideal sell level today. Back below 1.3890 should also open deeper setbacks. USD/JPY structure has shifted and the outlook for the pair is now negative with deeper setbacks favored over the coming session to test next key support by 93.55. A break below 93.55 will then expose the key trend lows by 87.15 over the coming weeks. Only back above 95.25 delays. GBP/USD remains in sharp rally mode since breaking to fresh 2009 highs beyond 1.5375 with the pair now looking to retest key psychological barriers by 1.6000. However, much like the Euro, daily studies are overbought with the RSI tracking above 70, to warn of the potential for a decent pullback. Any rallies to 1.5950-1.6000 should be used as sell opportunities today. Below 1.5755 also opens deeper setbacks. USD/CHF continues to extend declines on Friday with the market now eying next key support by 1.0865 from January. Look for this level to be tested with any additional weakness below seen as limited given oversold readings. Key levels to watch above come in by 1.0940 over the coming session. A break above 1.0940 will take pressure off of the downside.
Flows – Semi-official bidding Eur/Gbp. Commercial offers in Eur/Jpy. Commercial and institutional demand for Kiwi. Large option barriers in Eur/Usd at 1.4000.
Trade of the Day – Usd/Cad: We continue to look for opportunities to buy the highly overextended pair and will once again take a shot on Friday if the market decides to test our entry level. The daily RSI is flirting with the oversold 30 level and although there is room for additional setbacks, the risk for a corrective bounce is increasing. Markets have a tendency to overshoot and particularly on lightened pre-holiday trade. As such, we will look to buy on a dip when the hourly studies are also showing overextended to allow for the greatest chance for success. This will likely come in somewhere on approach to 1.1200. Strategy: BUY @1.1230 FOR A 1.1800 OBJECTIVE, STOP @1.0980. Stops to be trailed to cost on a break back above 1.1330. If trade triggers and 1.1330 not broken, position to be closed out at NY close (4pm NY time) on Friday. Recommendation to be removed if not triggered by NY close on Friday.
</p> Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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Quant section prepared by David Rodriguez, Quantitative Strategist for DailyFX.com
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Joel Kruger publishes 6 daily pieces:
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“Indicator of the Day” – A Feature Report that Highlights our Most Significant Technical Indicator of the Day.
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