Fundys - The upbeat tone in the markets continues into Tuesday with the commodity currencies leading the way on compelling yield differentials and apparent signs of a bottom within the global economy. Initially, the RBA left rtes on hold as expected at 3.00%, and although there was some talk of a slowing economy, market participants were quick to shrug this off on more upbeat comments on Chinese recovery prospects and an unchanged interest rate verdict. With this, the antipodean again managed to post fresh 2009 highs well into the 0.7400's. Another impressive performer overnight was Sterling which benefited from the much better than expected construction PMI data which came in at 38.1 versus expectations for a 31.9 print. Although the CBI data was less than encouraging, and signs of weakness were easily offset by a response from those surveyed that the worst was behind. Meanwhile, the Euro and Swissy were not able to benefit as much from the positive carry sentiment, with both currencies weighed down by disappointing data out of the respective regions. In the Eurozone, producer prices dropped by the most in 22 years and came in much weaker than expected, while Swiss consumer confidence was also much weaker, dropping to the lowest level in 6 years. The Canadian Dollar on the other hand has also been an outperformer with the Loonie extending gains on Tuesday after posting fresh yearly highs against the greenback on Monday. Many have been buying back into the Canadian currency on signs of global recovery and the recent decision by the Bank of Canada to hold off on implementing a formal quantitative easing policy. On the official front, SNB Hildebrand was back on the wires saying that there were signs that the domestic decline was slowing, but also reaffirmed his commitment to curb any undue appreciation in the Swissy. ECB Orphanides was also in the news saying that underestimated investment risks and ineffective supervision resulted in the global crisis and that a longer-term strategy was needed going forward to prevent this from happening again. Looking ahead, ISM non-manufacturing (42 expected) is due at 14:00GMT, while ABC consumer confidence (-44 expected) comes out later in the day at 21:00GMT. The calendar is also stacked with Fed speakers including; Rosengren (10:45GMT), Bernanke before the Joint Economic Committee (14:00GMT), Hilton (16:00GMT) and Stern (17:15GMT). US equity futures point to a marginally higher open while commodities are trading flat.

Quant -

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Techs - EUR/USD continues to press higher and looks poised for a test of the 200-Day SMA by 1.3500. Key levels to watch into the NY session are 1.3440 and 1.3320. USD/JPY well supported on dips to 98.50 with the market still not willing to rule out a test of key psychological barriers at 100.00. A break above 100.00 will accelerate gains towards the 101.45 yearly highs while back under 98.50 opens deeper setbacks to initial 97.15 support. GBP/USD gains have accelerated beyond 1.5070 on Tuesday with the next key resistance coming in the form of the 2009 highs by 1.5375. A break back below 1.4980 will be required to take the pressure off of the topside. USD/CHF has easily broken down below the 200-Day SMA to delay any hopes for a more significant recovery with a likely test of the key medium-term trend lows by 1.1165 seen over the coming sessions. A break back above 1.1450 will now be required to take the pressure off of the downside.

Flows - Sell orders starting to emerge in Aussie on approach to 0.7500. Models and Asian accounts buying Cable. German bank selling Eur/Gbp. Asian bids in Eur/Usd along with some CTA and leveraged accounts. German bank bidding Usd/Jpy; commercial sell interest.

Trade of the Day - Usd/Cad: We were finally able to get involved on Monday with our desired entry price being hit, but unfortunately the result was not what we were looking for after being forced to exit the trade for a 60 point loss on the New York close. However, this does not change the fact that we still believe a major upside reversal is in the cards and the question now is only an issue of timing. The optimal entry point for a long trade is very near with the daily RSI on the verge of rolling into oversold territory (just over 30 at present). As such we will look to once again buy on a dip today, with our revised entry point sure to coincide with a daily RSI well below 30 and an hourly chart that is also oversold, making the risk for a reversal extremely high at that point. If our entry is triggered today, we will not exit the trade on the New York close and will hold onto the position until stop, profit or further instruction. In reference to the broader structure, the pair has pulled back quite sharply over the past several days with the market breaking to fresh multi-day lows below the 200-Day SMA to the lower 1.1700's thus far. While the current pullback changes the picture somewhat, the broader structure still remains constructive with the market locked in a longer-term bullish consolidation dating back to October of 2008. As such, any dips towards the bottom of the range should be used as opportunities to establish long positions in anticipation of a move back into the mid-range at a minimum. Strategy: BUY @1.1605 FOR A 1.2270 OBJECTIVE, STOP @1.1380. Stops to be trailed to cost on a break back above 1.1700. Recommendation to be removed if not triggered by NY close (5pm ET) on Tuesday.

Written by Joel Kruger, Technical Currency Strategist for
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Quant section prepared by David Rodriguez, Quantitative Strategist for
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