Tuesday was generally quite favorable for the US Dollar, with the currency managing to benefit from some risk off flows, and on the whole stronger data on the domestic front. The Greenback was also not really hurt from rising oil prices back above $100, while testimony from Bernanke in which the Fed Chair repeated the ongoing need for stimulus, failed to materially influence price action. Geopolitical tensions have resurfaced in North Africa and the Middle East and this has been the primary driver for the risk aversion flows, lower equities and higher oil prices. As a consequence of this fact, it is therefore no surprise to see the Swiss Franc and Canadian Dollar continue to outperform on a relative basis. The Euro has stalled out for now ahead of key short-term resistance by 1.3860, and news that S&P has maintained Greece's sovereign credit rating on negative watch, and Ireland's central bank wants a lower interest rate on their EU/IMF bailout package is not helping the major's cause.

But for now, it seems as though the commodity bloc currencies could be the most exposed going forward, with Kiwi, Aussie and even Cad all offering good reason to be looking for profit taking. The New Zealand Dollar continues to be the hardest hit of the three, with the fallout from the Christchurch earthquake adding to downside pressures in the currency. New Zealand PM Key saying that he welcomes a rate cut from the RBNZ given that the country may slip back into recession from the impact of the earthquake. The Australian Dollar has also come under added pressure on Wednesday following a weaker than expected GDP print. This in conjunction with an on hold RBA, slightly dovish statement on Tuesday, and softer China data have resulted in the latest accelerated drop below 1.0100. Although the Canadian Dollar stands out as the winner in the group right now, this market has also fallen off of its recent highs against the buck after the Bank of Canada left rates on hold and noted the challenges resulting from the strong Canadian Dollar.

Looking ahead, the calendar in European trade is exceptionally light, with UK construction PMI at 9:30GMT, followed by Eurozone producer prices (1.0% expected) at 10:00GMT. US equity futures and gold prices are tracking marginally lower into the European open, while oil remains bid above $100.

TECHNICAL OUTLOOK

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EUR/USD:The market has stalled out just shy of the critical short-term resistance at 1.3860 in favor of the latest minor bearish reversal. The prospects for yet another high in the 1.3860 area ahead of a more significant decline are looking better, but we would need to see a break and close back under 1.3700 to officially confirm this outlook and shift in the structure. Below 1.3700 should accelerate declines and open the door for a fresh drop towards the 1.3500 area further down.

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USD/JPY: Although the market has come under some intense pressure in recent trade back below 82.00, overall price action remains largely consolidative and we would expect to see the market once again well supported in the 81.00's. For now, 81.00 remains the key level to watch below, and only a close below this figure would negate the current range-bound price action and give reason for concern. As such, we like the idea of buying on dips into the 81.00's in favor of a bullish reversal and close back above 82.00.

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GBP/USD: The market largely remains locked in some consolidation after continuously stalling out by key resistance at 1.6300. From here, it is difficult to establish a clear directional bias and we will need to see a sustained break above 1.6300 or daily close back below 1.6100 for additional clarity. Tuesday's bearish gravestone doji and failure above 1.6300 certainly suggests that we could be in for additional weakness over the coming sessions.

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USD/CHF: The latest break to fresh record lows by 0.9228 is certainly concerning and threatens our longer-term recovery outlook. Still, we do not see setbacks extending much further and continue to favor the formation of some form of a material base over the coming weeks in favor of an eventual break back above parity. From here, big figures become key support as we are in unchartered territory, while a break back and close back above 0.9320 would be required to relieve immediate downside pressures.

Written by Joel Kruger, Technical Currency Strategist