The sustained rally in global equity prices is having a positive impact on the higher yielding currencies today, with the market continuing to trade out of the flight to safety greenback and into carry. This has led to significant short covering in emerging market positions with currencies like the Zar, Try, Huf and Pln all showing better bid. The rally in the Euro today has been driven by model fund, hedge fund and central bank demand, and 1-month risk reversals are positive for Euro calls for the first time since the end of January. TARP Chief Kashkari was testifying earlier to the House Oversight Committee saying that the Treasury should not micro-manage banks because government officials are not better qualified to make decisions than the lenders themselves. Eur/Gbp continues to surge to fresh multi-week highs, with the weaker NIESR and trade data out of the UK seen weighing on Sterling, while the official introduction of quantitative easing by the BoE could also be factoring into the relative Sterling weakness. The Canadian Dollar has been the biggest loser against the USD on the day, actually now down despite the relative USD selling. The earlier release of house price data in Canada which tripled expectations to the downside has been attributed to the Cad weakness. This was the biggest monthly decline in the data series since January, 1997. Looking ahead, the US monthly budget statement (-205.4B expected) is due at 18:00GMT, with the more significant event risk coming in the form of the RBNZ which is expected to cut rates by another 50bps to 3.00% at 20:00GMT.


Eur/Gbp -
The cross has broken to fresh six-week highs and continues to surge reaching 0.9300 thus far today ahead of the latest minor pullback. However, while below the 0.9520 (26Jan high) 2009 lower top, we continue to look for opportunities to establish short positions in anticipation of a resumption of the broader decline off of the 0.9805 life-time highs from late December 2008. The next key levels to watch above come in by the 0.9340-60 area which represent the 78.6% fib retracement off of the 0.9520-0.8635 move and 61.8% fib retracement off of the 0.9805-0.8635 move. Any evidence of stalling in this area should be used as an opportunity to re-establish short positions. Daily stochastics are already overbought and a move to 0.9340-60 will most likely put the RSI above 70 which also bodes well for a lower top and market reversal.

Written by Joel Kruger, Technical Currency Analyst for
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