| By Joel Kruger, DailyFX Technical Strategist
Talking Points
- Euro well supported ahead of key level, takes pressure off downside
- Equities still looking overdone to us; there are risks for pullback
- Pimco on wires with risk negative comments relating to Eurozone
- Australian Dollar at risk and showing notable divergence from equities
- Yen and Franc also worth watching over the coming days
The Euro has managed to find some decent support for now by 1.3000 and ahead of key levels at 1.2975, with the market once again bid up on the back of some risk positive themes. Global equities remain in demand and the healthy risk appetite has opened the door for renewed interest in risk correlated FX markets. However, we continue to remain highly skeptical with the performance in equity markets and are on the lookout for a sizable pullback. It is the view of this desk that the retracement in equity markets from the 2007 highs to 2009 lows is now well overdone and not reflective of fundamentals. US equity markets have retraced some 85% of this move, and given the global economy is still attempting to recover from a major recession, we feel that an 85% retracement is perhaps a little too optimistic at this point. Pimco's Mohamed El-Arian has been quoted in the UK Telegraph as saying that he expects a "second Greece" in Portugal, and that the country will soon need a second bailout with the original Eur78B package falling short. Although the story has not been getting market moving attention to this point, we share Mr. El-Arian's sentiment and believe that the ongoing troubles in the Eurozone and additional threat of a major slowdown in China should act as a catalyst for a near-term liquidation of risk correlated assets.  Of the major currencies, we see the higher yielding Australian Dollar as the most at risk in the current market environment given the currency's risk correlation and exposure to China. Data out of Australia has also been showing signs of weakness and any materialization of broader risk off themes could ultimately start to weigh heavily on the currency. We have also noticed a breakdown in the correlation between the Australian Dollar and US equities in recent days which could foreshadow a more prominent structural shift to risk off trade ahead. Currency markets have a way of leading and if the Australian Dollar has not been confirming recent equity strength, this could be offering a warning sign of a bearish reversal in US and global equities. Moving on, the Yen is also worth watching this week with the currency the most stretched of the major currencies and potentially at risk for a reversal. The Yen has been very well offered over the past few weeks and the acceleration of declines has resulted in some highly technically oversold readings. Fundamentally, any shift here and appreciation in the Yen going forward would also lend further support to our broader outlook for risk off trade, with the Yen traditionally correlating to risk and being well bid in safe haven market environments. While we see this correlation breaking down a bit over the medium-term and longer-term and ultimately project additional Yen weakness ahead, over the short-term, we see room for some strength in the Yen. Finally, we will also be monitoring the price action in EURCHF with the market very well supported by the highly publicized 1.2000 SNB floor and recently showing signs of a bullish breakout. ECONOMIC CALENDAR
 TECHNICAL OUTLOOK
The market has been well supported on the latest dip towards key support at 1.2975 and the subsequent bounce back above 1.3100 delays bearish prospects and opens the door for additional consolidation over the coming days. The key levels to watch above and below come in by 1.3300 and 1.2975 respectively and a break and close above or below will be required for clearer directional bias. In the interim we remain sidelined. GBP/USD:  The market has been mostly confined to trade between the 100 and 200-Day SMAs since early February and until we see a clear break on either end, we will continue to see some choppy range trade. Key levels to watch above and below come in by 1.6000 and 1.5600 respectively and we will wait for a break on either end to establish a clearer directional bias. The market is doing a good job of showing the potential for the formation of a major cyclical bottom after closing above the weekly Ichimoku cloud for the fist time since July 2007. This further solidifies basing prospects and we could be in the process of seeing a major bullish structural shift that exposes a move towards 85.00-90.00 over the coming weeks. At this point, only back under 77.00 would delay outlook and give reason for concern. However, in the interim, it is worth noting that gains beyond 84.00 over the coming sessions could prove hard to come by with shorter-term technical studies needing to unwind from their most overbought levels in over 10 years before a bullish continuation. As such, we would caution buying breaks above 84.00 for the time being and instead recommend looking for opportunities to buy on dips towards 80.00-82.00. USD/CHF:  Setbacks have stalled for now just ahead of 0.8900 and the market could finally be looking to carve the next medium-term higher low ahead of a bullish resumption and eventual break back above 0.9660. The latest break back above 0.9300 helps to confirm bullish outlook and should now inspire further gains over the coming days. Ultimately, only a drop below 0.8930 negates and gives reason for pause. --- Written by Joel Kruger, DailyFX Technical Currency Strategist
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