Sterling and Aussie to Fresh 09 Highs Against USD on Talk of TARP Repayment (Morning

With recent global economic data showing signs of a bottom and some major US banks announcing their intention to apply for TARP repayment, sentiment continues to improve helping to bolster currencies, global equities and commodity prices. Both the Aussie and Sterling have recorded fresh yearly highs against the USD on Tuesday, while oil trades back above $60.

MORNING SLICES

Fundys – With recent global economic data showing signs of a bottom and some major US banks announcing their intention to apply for TARP repayment, sentiment continues to improve helping to bolster currencies, global equities and commodity prices. Both the Aussie and Sterling have recorded fresh yearly highs against the USD on Tuesday, while oil trades back above $60. Euro bulls now eye a retest of the key trend highs by 1.3740 over the coming session. On the data front, the [B]German ZEW[/B] was somewhat mixed with the headline coming in better than expected, while the current situation was slightly weaker. Meanwhile, Eurozone construction was down from the previous month. In the UK, CPI was somewhat concerning after coming in lower than expected. However this did not prove to factor into price action with broader global macro drivers dominating trade. UK PM Brown’s status as PM remains under pressure with a survey published showing 6 out of 10 Labour Party supporters wanting Brown to step down ahead of the general election. Despite the latest signs of stabilization, ECB Tumpel-Gugerell said it was too early to talk of the crisis being at an end. ECB Kranjec reaffirmed that all of the ECB policymakers were unified on the central bank’s next moves. Looking ahead to the North American session, US housing starts (523k expected) and building permits (530k expected) are due at 12:30GMT, followed by ABC consumer confidence later in the day at 21:00GMT. On the official circuit, Fed Stern is scheduled to speak in Minnesota at 17:15GMT.

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Techs - EUR/USD (see below). USD/JPY extends gains into Tuesday following Monday’s bullish outside day off of Ichimoku cloud support. Key levels to watch over the coming session come in by 96.70 and 96.00. GBP/USD has broken to fresh yearly highs beyond 1.5375 and is testing key psychological barriers at 1.5500. Look for a push to the 200-Day SMA at 1.5570 over the coming session with only a break back below 1.5295 to delay the current rally. USD/CHF back under pressure in the early week and contemplates a retest of the recent trend lows by 1.0975. Key levels to watch over the coming session come in by 1.1165 and 1.1090.

Flows – Model and leveraged names on the bid in Eur/Usd; supranational offers. Semi-official and US investment bank offers into rallies in Cable. Asian sovereigns buying Aussie and other commodity currencies. UK clearer demand for Eur/Gbp. CTAs bidding Gbp/Jpy.

Trade of the Day – Eur/Usd:
We have been writing of the likelihood that the recent 1.3740 trend highs will be taken out before considering any real chance at the next major USD bull run. Today, currencies are much better bid in light of the improved sentiment and as such we have seen a push to fresh 2009 highs in Cable and Aussie. At this point, the Euro also looks primed for an assault on 1.3740 and we will look to sell on a rally towards this levels today in anticipation of a reversal after the level is taken out. Strategy: SELL @1.3740 FOR A 1.3440 OBJECTIVE, STOP @1.3890. Stops to be trailed to cost on a break back below 1.3690. If trade triggers and 1.3690 not broken, position to be closed out at NY close (5pm NY time) on Tuesday. Recommendation to be removed if not triggered by NY close on Tuesday.

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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