Fundys - Any questions over the status of the USD as the currency of choice are being answered into the early week, with the greenback continuing to rally sharply on a broad based flight to safety. The latest price action has been largely attributed to the news that US auto giants GM and Chrysler have failed to secure restructuring funding from the US Auto Task Force and a warning that bankruptcy could be the best option. Also seen weighing on sentiment has been the failure of a saving bank in Spain along with comments from Spanish Econ Minister Solbes who has said that it would be impossible to say that more banks are immune to such failures. ECB Bini Smaghi was on the wires overnight commenting on the much lower production potential of the global economy in the future as a result of the financial market crisis. On the data front, Eurozone releases were much worse than expected with fresh multi-year lows in business climate and economic sentiment. Meanwhile in the UK, data was offsetting with stronger mortgage approvals and weaker Feb net consumer credit. Looking ahead, the North American calendar is light with the only release scheduled at 14:30GMT in the form of Dallas Fed manufacturing. Market participants will also be paying close attention to Bank of Canada Carney who is slated to speak at 17:50GMT. Carney could provide some insights into the direction of monetary policy and the potential for an adoption of quantitative easing.

Techs - EUR/USD continues to extend declines off of the 1.3740 highs reached on 19Mar into the 1.3100's thus far. Daily studies still show plenty of room for additional weakness and we look for a test of the 1.3090-1.3120 area (20/100-Day SMAs) over the coming session. Rallies should be well capped ahead of 1.3300. USD/JPY gains have stalled out ahead of the 2009 highs at 99.70 by 98.90 to open the latest round of setbacks. However dips into the 95.00's should support ahead of renewed upside back towards the trend highs at 99.70. Only back below 95.65 concerns. GBP/USD is in the process of rolling over for a resumption of the broader downtrend as the pair remains well confined to a very prominent bear channel. Intraday rallies should now be well capped ahead of 1.4320 while 1.4000 is the next key level to watch below. USD/CHF is recovering nicely since basing out by 1.1165 on 19Mar with the market finally breaking back above the 1.1345 short-term range highs. A medium-term higher low is now sought out by 1.1165 ahead of the next major push back towards 1.1970 over the coming days. Key levels to watch over the coming session come in by 1.1575 and 1.1435.

Flows - Offers from AAA account in Usd/Jpy; Japanese trust banks bidding. Corporate bids in Aussie in the 0.6700's. UK clearer heavy seller of Cable. Japanese accounts selling Eur/Jpy. Macro accounts and system funds selling Eur/Usd.

Trade of the Day - Aud/Nzd: We have been doing a lot of Kiwi selling of late with the currency showing overbought across the board. This cross is also now well oversold and dips should be used as opportunities to buy back into the broader up-trend. Setbacks have reached and slightly exceeded the 61.8% fib retracement off of the 1.1935-1.2935 Dec-Mar move, while also just kissing the major 38.2% fib retrace off of the 1.0640-1.2935 Oct-Mar move at 1.2070 on Monday. We do not expect the cross to be able to sustain below this level given the highly oversold daily readings. Look for a medium-term higher low to carve out at current levels above 1.2000 ahead of the next major upside extension back towards the 2009 highs at 1.2935. Strategy: BUY @1.2060 FOR A 1.2490 OBJECTIVE, STOP @1.1860. Stops to be trailed to cost (break-even) on a break back above 1.2200. Recommendation to be removed if not triggered by NY close (5pm EDT) on Monday.

Fundamental Catalyst -
The cross has been selling off over the past few weeks on some form of stabilization in global equity prices and a mild resurgence in risk appetite. However, this is not expected to last and we are already seeing some signs of a resumption of the familiar theme of heightened risk aversion and deteriorating investor sentiment. Australia is by far the more stable and better performing economy and should stand to benefit from the broad based flight to safety.

Written by Joel Kruger, Technical Currency Analyst for
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