Greenback Bid Against Yen; Offered Against Others (Morning Slices)

The overnight session shows a USD that is bid against the Yen and mildly offered against all other major currencies. Looking ahead to the North American calendar, US producer prices, housing starts and building permits are due at 12:30GMT, along with Canada manufacturing shipments and labor productivity. US consumer confidence comes out later in the day at 21:00GMT.

Fundys - The overnight session shows a USD that is bid against the Yen and mildly offered against all other major currencies. Global equities are back under pressure with weakness in the financials and oil driving much of the price action. The release of the more dovish RBA minutes has also weighed on broader investor sentiment after the central bank disclosed that they would still be prepared to cut rates further despite the recent decision to stay on hold. In Japan, the rumor that the BoJ would be buying subordinated debt issues by banks was confirmed, with the measures imposed to stabilize the financial system. Meanwhile in the Eurozone, the much anticipated [B]German ZEW[/B] was released, coming in much better than expected at -3.5 after analysts had been looking for a -8.0 print. The ZEW institute went on to say that the bottom of the recession was likely to be reached “this summer.” Also generating a lot of attention overnight were the SNB Roth comments in which the Swiss central banker provided additional color on the recent decision to implement intervention into monetary policy. Roth said the move was intended to protect the economy from entering a deflationary period and not as a means to gain competitiveness. Perhaps more importantly, Roth said that “we have clearly shown what are commitment is and the market has acted accordingly.” In the UK, PM Brown came forward to accept “full responsibility” for his role in the banking crisis and did not rule out the possibility for additional stimulus. Finally, oil news is once again getting a lot of attention after Algeria Energy Minister Khelil warned that OPEC would have to cut production if demand kept falling. He also reiterated the organization’s $70 price point. Looking ahead to the North American calendar, US producer prices (-1.4% expected), housing starts (450k expected) and building permits (500k expected) are due at 12:30GMT, along with Canada manufacturing shipments (-5.8% expected) and labor productivity (0.1% expected). US consumer confidence (-48 expected) comes out later in the day at 21:00GMT.

Techs - EUR/USD Recent gains have stalled just above the 100-Day SMA to open the latest pullback. It remains unclear where we go from here at this point with the key levels to watch over the coming session coming in by 1.3070 and 1.2835. USD/JPY tracking higher on Tuesday but still locked in a consolidation. Both bulls and bears have sound cases with bulls claiming bullish consolidation, while bears cite a head & shoulders top. Key level to watch come in by 99.70 and 97.55. GBP/USD has found some offers by the 20-Day SMA to cap gains for now. Back above 1.4230 will open a direct test of the 50-Day SMA at 1.4325 while below 1.3890 will signal resumption of broader downtrend. USD/CHF remains confined to the recent choppy range, despite the latest break to fresh 2009 highs at 1.1970 last Thursday. Look for the market to trade lower over the coming sessions back towards the 10/20-Day SMAs by 1.1700. Key levels to watch above and below come in at 1.1915 and 1.1750.

Flows - Sell orders building in Cable around 1.4000; UK clearer on the offer. Asian central bank, speculative accounts and system funds buying Usd/Jpy; commercial accounts and exporters on the offer.

Trade of the Day - Eur/Jpy:
The rally out from the previous higher low at 121.75 from March 3 continues into Tuesday with the cross now looking to put in the 7th up-day in the past 8 days. However, we are now approaching critical multi-day range highs in the 130.00 area, and would expect to see some initial resistance at a minimum by 130.00 before even considering a more substantial upside breakout beyond. Daily studies are also starting to look stretched at current levels and we anticipate a move to 130.00 today will officially put the RSI above 70, leaving the cross exposed to a healthy corrective pullback. The overriding trend still remains grossly bearish and moves to 130.00 should also be met with some good sell interest from longer-term accounts looking to build on existing shorts. Strategy: SELL @130.00 FOR A 125.50 OBJECTIVE, STOP @131.60. Stops to be trailed to cost on a break back below 129.20. If trade triggers and 129.20 not broken, position to be closed out at NY close (5pm EST) on Tuesday. Recommendation to be removed if not triggered by NY close on Tuesday.

Fundamental Catalyst - Equities have been rallying over the past several days but are finally starting to once again show signs of rolling back over. While the correlations between equity prices/risk appetite and the Yen have not been as compelling of late, they still need to be watched closely with a rapid turnaround in sentiment to likely once again fuel some profit taking on the Yen crosses. Additionally, contrary to what the markets had interpreted at the previous RBA decision in which the central bank left rates on hold at 3.25%, the revelation in the RBA minutes that the central bank was indeed prepared to cut rates again has quickly mitigated any positive reaction to the unchanged verdict. This has broader global macro implications, as it confirms that the global economy is still showing signs of deterioration, which ultimately could weigh on the cross.

Written by Joel Kruger, Technical Currency Analyst for
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