[Dan]

There were tentative signs that the USD sell off was starting to stabilize yesterday as some of the major currencies backed off their intraday highs versus the US currency but the dollar is one the back foot again this morning and the market remains very much in sell-dollar-rallies mode. While Treasury Sec. Geithner and his Chinese hosts continue to play nice – both the US and China expect the dollar to be the main reserve currency for a long time, Mr Geithner said earlier today – the Russian government said that this month’s BRIC summit may discuss the idea of a “supra-national world currency”. While we remain of the opinion that the SDR is not (for the moment) a viable alternative to the USD, the fact that the mere mention of this sort of thing can put the USD back on the ropes suggests that dollar sentiment remains generally very fragile. We note that relatively firm equities (the S&P 500 pushed through its 200-day MA yesterday), firm commodity prices (copper, gold and oil made new highs for the current move up yesterday amid more “green shoots” optimism) as well as the very steep US yield curve all suggest that the USD is still facing some very stiff headwinds for the moment.

EUR/USD picked up sharply from the 1.41 zone this morning and the short term chart appears to have formed a bull wedge formation over the course of the past day or so; this morning’s upside break has stalled close to yesterday’s highs but if the wedge has any technical merit, it should mean that the EUR continues to rally – strongly – from here in the short term. Failure to make a new high soon could see the EUR slip back to the upper 1.41s, with 1.4105 assuming significant importance (minor double top trigger) if 1.4250 holds. The JPY is the session’s top performer on the session today, with cross-related flows helping lift the currency generally. Big swings between 94/97 over the past few days make this one a hard call in the short term though we’ll stick with the idea that while resistance in the mid 97s holds, an important top is in place.