Yesterday, the USD gained against most of the major currencies on speculation the Federal Reserve will signal that it has… … finished lowering Interest Rates after 6 reductions since September.

The dollar traded at 1.5559 vs. the EUR at 6:10 a.m. in Tokyo, after rising 0.6%
yesterday and touching 1.5541, the strongest rate since April 3.
Futures on the Chicago Board of Trade show an 82% chance the Fed will cut the target
rate for overnight lending by a quarter of a percentage point to 2% today and odds
of 71% that the rate will be held at that level in June.
Only a week ago, the USD plunged to a record-low against the EUR, boosting demand
for raw materials as a hedge against inflation. Now, following the rising confidence
in the US currency, commodities dropped the most in 5 weeks as a rally by the USD
eroded demand for energy, metals and crops as alternative investments.

A stronger dollar will reduce some benefits for US exporters, but it could help curb
inflationary pressures. Currency analysts attribute the greenback's return from a
historical low of 1.6017, mainly to short USD selling and profit-taking.

Fundamentally, the dollar is still weak. The majority of indicators reflect major
weakness in the US economy. Today we expect heightened USD volatility to continue as
the 1st quarter GDP figures are scheduled for release at 12:30 GMT. Gross Domestic
Product figures may show that the US economy shrank in the first quarter while
Friday's jobs report is also expected to show payrolls fell 80,000 in April.

The ADP Nonfarm Employment Change and the Chicago PMI figures are also due to be
released today. These market moving indicators are also forecasted to set a lower
result in comparison to the prior month. A result below the expectation will
probably produce bearish momentum for the USD, as it would be clear proof that the
world's largest economy is in a stage of contraction. On the other hand, a reading
in line with expectations isn't likely to spark much reaction as traders will be
anxiously awaiting the FOMC decision as well as Friday's Nonfarm Employment Change.

* EUR
The EUR hit a 4 week low vs. the greenback yesterday as poor economic data from the
Euro zone dented the ECB hawkish monetary policy sentiment. The European currency
also slid following the greenback's appreciation on views that the U.S. rate cutting
cycle could end soon.

By the end of the day, the EUR was down 0.6% and traded at 1.5559, having earlier
hit a low of 1.5542 against the USD.
Retail sales fell almost across all of the Euro member states with only Germany
showing its Consumer Confidence figures up, as was seen on Monday. Higher food
prices led to sales of food falling in Europe by the fastest rate in more than 2
years. This suggests that Retail Sales across the region will probably see a similar
decline. French Consumer Confidence also fell to its lowest since 1987, adding to a
view that the Euro zone economy isn't insolated from problems pushing the U.S.
economy to the verge of recession.
The accelerating European inflation continues to squeeze consumer income. The strong
EUR dampens exports. Low exports contribute to a growth slowdown which places the
ECB under pressure to lower rates. While markets are expecting a slightly hawkish
tone from the US FOMC's statement accompanying the rate decision, poor economic data
from the Euro zone raises doubts on the ECB's ability to maintain its tough stance
on inflation and Interest Rates.
The only thing that can possibly trigger a meaningful turn in the single currency is
the Interest Rate cut by the European Central Bank. If economic data deteriorates
even further, the central bank may have to seriously consider this possibility.

German unemployment is due today and we expect the employment numbers to be
unchanged. Later the Consumer Confidence, the Italian CPI and the European
Unemployment Rate are also scheduled for release. Most of these indices are expected
to set relatively weak figures.
Overall, the EUR is expected to remain resilient as traders are expected to exercise
caution ahead of Friday's US fundamental announcements. A bullish movement against
the greenback will probably resume only after the weekend.
From the 'long range' perspective, as long the Interest Rate differential between
the U.S and Europe continues to widen, the EUR will remain the preferred currency
amongst traders.

* JPY
All of the JPY crosses have sold off yesterday with the biggest drop seen in GBP/JPY
and NZD/JPY. The low yielding Yen also strengthened against the USD – sparked by a
rise in risk aversion.

Investors are seeing signs of an economic slowdown in Japan, and yesterday's news
events from the Asian powerhouse only added to such assumptions. Japanese PMI fell
on news that rising production costs have contributed to a lag in exports. Also
yesterday we saw the lowest return of Japanese Industrial Production in just around
5 years. The 3.1% drop was much deeper than initial forecasts of 0.7%. An unexpected
drop in unemployment rate as well as overall Housing Starts numbers rates has
contributed to poor Japanese economic outlook.

The Japanese currency is likely to remain bearish ahead of today's JPY Housing
Starts figures and the US Interest Rate announcement. Apart from that, there is no
important economic news expected to be released from the Japanese markets. Investors
should look toward global news, to chart the next JPY movement.

Technical News
* EUR/USD
After bottoming at 1.5545 yesterday, the pair now shows local signs of a correction.
The 4 hour chart is showing that the bullish move might not have enough steam in it,
and that the bearish trend will probably resume before the weekend. Selling on highs
might be a good strategy today.

* GBP/USD
The daily chart is showing the early stages of a bearish channel, as the cable now
floats at the bottom barrier of it. A break beyond the 1.9610 will validate the
bearish trend and will give the pair a next target price of 1.9535. Forex traders
should wait for the breach before shorting the pair.

* USD/JPY
There is a narrowing bullish channel forming on the daily chart, as the pair now
floats around the bottom barrier. The local momentum is still moderately bearish
which makes it preferable for Forex traders to look for a good entry price for a
long potion.

* USD/CHF
The bullish momentum which was created by the breach through the channel is slowly
calming. The pair is shaping into a flat consolidation mode with no fresh direction
signals. Traders are advised to wait for a clear sign before going in on this one.

The Wild Card
* WILD – Crude Oil
There has been a sharp breach beyond the bottom barrier of the sharp bullish
channel. The Slow Stochastic is showing a fresh bearish signal in the form of a
triple top which indicate a very strong possible bearish corrective move.
Forex traders must wait for the breach to validate before taking the short position.

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