Currencies Likely to Consolidate Ahead of Key Fed Event Risk

G20 fails to produce anything meaningful, but somewhat upbeat IMF raises fund contributions; US does not participate All eyes on today’s major event risk in the form of the Fed rate decision Markets remain very well supported and although the G20 failed to produce anything meaningful, this was not a surprise and it may have been enough that the Group maintained a strong commitment to support the global economy through government proponomics. Interestingly, the IMF’s fund contributions were raised to $465B versus 430B previous, but none of the contributions came from the US. While we wouldn’t read too much into this, perhaps the real US contribution will come later today by way of additional action from the Fed. Markets are now looking for the Fed to extend Operation Twist or even potentially offer additional quantitative easing. Any of these moves should be taken as net risk positive and could open the door for additional strength in risk correlated assets. Should the Fed however maintain current policy, there would be risk for a major reversal and risk liquidation.
ECONOMIC CALENDAR

 TECHNICAL OUTLOOK

 EUR/USD: While our overall outlook remains grossly bearish, from here we still see room for short-term upside before a fresh lower top is sought out. Look for the latest positive weekly close to open the door for acceleration into the 1.2800-1.3000 area, where fresh offers are likely to re-emerge. Setbacks should be well supported ahead of 1.2400.
 USD/JPY:The latest setbacks have been rather intense, with the market collapsing through the 200-Day SMA before finally finding support by 77.65. We have since seen attempts at recovery and we contend that the market should continue to break higher, with sights ultimately set on a retest and break of the 2012 highs by 84.20 further up. However, at this point, we will need to see a break and close back above 80.00 to officially alleviate downside pressures and reaffirm bullish outlook.
 GBP/USD: Daily studies are now correcting from oversold and from here risks seem tilted to the upside to allow for a necessary short-term corrective bounce after setbacks stalled just shy of the 2012 lows from January. Look for additional upside towards the 1.5800-1.6000 from where a more meaningful lower top is sought out ahead of bearish resumption.

 USD/CHF: While we retain a broader bullish outlook for this pair, with the market seen establishing back above parity over the coming weeks, shorter-term risks are for more of a corrective pullback to allow for the market to establish a fresh higher low. As such, we see risks for weakness over the coming sessions towards the 0.9200-0.9300 area before the market looks to reassert its bullish momentum and broader uptrend.

::$$:: USD Struggles On Disappointing NFPs, EUR To Consolidate On Elections

Talking Points
U.S. Dollar: Non-Farm Payrolls Disappoint, Jobless Rate Contracts Euro: Consolidates Within Bearish Formation - Greek, French Election In Focus British Pound: To Consolidate Ahead Of BoE Interest Rate Decision U.S. Dollar: Non-Farm Payrolls Disappoint, Jobless Rate Contracts
The greenback came under pressure following the dismal Non-Farm Payrolls report, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) paring the overnight advance to 9,922, and the reserve currency may consolidate throughout the North American trade as market participants increase bets for more monetary easing. Indeed, the world’s largest economy added 115K jobs in April following the 154K expansion during the previous month, while the jobless rate unexpectedly slipped to 8.1% from 8.2% as discouraged workers continued to leave the labor force.
Moreover, wage growth slowed during the same period, with the annualized reading falling back to 1.8% from a revised 2.0%, and the slew of weaker-than-expected data may encourage the Fed to carry its easing cycle into the second-half of the year as policy makers look for a stronger recovery. However, as the central bank expects economic activity to gradually gather pace throughout 2012, Fed officials may continue to soften their dovish tone for monetary policy, and the FOMC may start to discuss a tentative exit strategy as growth and inflation picks up. As the USDOLLAR carves out a higher low in May, the short-term rebound in the index should continue to gather pace, and the greenback may continue to retrace the decline from the previous of month as central bank officials become increasingly upbeat towards the economy.
Euro: Consolidates Within Bearish Formation - Greek, French Election In Focus
The Euro snapped back following NFPs, with the EURUSD bouncing back from an overnight low of 1.3120, but we will stick with our bearish forecast for the single currency as the economic docket continues to cast a weakened outlook for the region. As the election in France and Greece come into focus, a shift in leadership may further drag on investor confidence, and we may see the single currency face additional headwinds in the week ahead as the threat for contagion continues to dampen the outlook for the region. As European policy makers struggle to address the risks surrounding the region, fears of a prolonged recession are likely to intensify in May, and we should see the bearish formation in the EURUSD continue to take shape as it carves out a series of lower highs. As price action approaches the apex of the descending triangle, we are looking for a major break to the downside, but the euro-dollar may continue to consolidate in the week ahead as it continues to find support around 1.3000.
British Pound: To Consolidate Ahead Of BoE Interest Rate Decision
The GBPUSD pared the decline to 1.6154 on the back of dollar weakness, but we are still looking for a short-term correction in the exchange rate as the relative strength index continues to come off of overbought territory. As the Bank of England is scheduled to meet next week, we should see the British Pound consolidate ahead of the rate decision, but the central bank may refrain from releasing a policy statement as the Monetary Policy Committee is widely expected to maintain its current policy stance in May. However, as BoE officials take note of the stickiness in underlying inflation, we may see a growing rift within the MPC, and the central bank may ultimately move away from its easing cycle in an effort to restore the credibility on its inflation mandate. Although our near-term bias remains to the upside, we want to see the GBPUSD find support around 1.6000 to see a move higher, and the sterling may mark fresh yearly highs later this month should the BoE Minutes due out on May 23 dampen speculation for more quantitative easing.

>> Commodity Bloc to Underperform While Major Currencies Consolidate

-Euro still locked in choppy consolidation

-G-20, IMF and World Bank meetings kick off

-Looking for underperformance in commodity and EM FX

-German IFO and UK retail sales come in above consensus

-Taking a closer look at risk management and effective trading technique

We have reached the final session for the week and after all is said and done, there have really been no significant price action developments in the major currencies. The Euro remains locked in a tight consolidation and will still need to break and close back above 1.3215 or below 1.2995 for clearer directional bias. Thursday’s successful Spanish bond auction has managed to prop the single currency for the time being, but any upside has been capped to this point.

Relative performance versus the USD Friday (as of 10:35GMT)

CHF +0.40%

EUR +0.35%

GBP +0.31%

CAD +0.30%

AUD +0.07%

NZD -0.01%

JPY -0.18%

Global equity markets still seem to be overvalued in our opinion and the technical picture warns of a more substantial decline over the near-term. As such, we would expect to see a continued underperformance in risk correlated currencies going forward, and perhaps it is best to be net short a basket of the commodity bloc and emerging market FX against the major currencies.

With this strategy, we would eliminate direct exposure to the US Dollar, whose fate seems to be less certain given the recent consolidation. By extension, we would also be long of some of the other major currencies like the Euro and Pound (against commodity and EM FX), and this seems to be the right trade on Friday, with both the Euro and Pound responding well to the much better than expected economic data in the form of German IFO and UK retail sales.

Looking ahead, markets may remain locked in a holding pattern in light of the G-20, IMF and World Bank meetings which are all underway. However, as per the usual, we do not expect any developments from these meeting to have any major influence on the direction in markets. The underlying market drivers over the coming weeks will continue to be driven off the Eurozone crisis, Fed monetary policy outlook, and Chinese economic performance.

Moving on, the other day I received an email from a client asking for some tips on risk management. The client was distressed with his performance and inability to successfully trade the markets and was looking for some feedback. I put together a response and thought it might be helpful to share my thoughts on the matter. The following is my response:

What you speak of is one of the most challenging things about being a successful trader....it is not easy and comes down to maintaining a very firm discipline.....the best I can explain is that intuitively, a trader will look to be fearful in a winning position and hopeful in a losing position...this is why most unsuccessful traders will get poor results....they are hopeful when they are losing and hold onto the position and yet the second they see any profit they are fearful and quick to take it off....this obviously skews risk/reward and makes for a bad strategy.....a lot of this stems from a lack of confidence....

What you need to do is to flip that around and be fearful in losing positions and hopeful in winning positions...this is really the secret....the best way to do this is to make sure you take only trades you love.....then determine where you would like to see the trade go..and let the trade play out..while also being very firm with your stop-loss...do not take profit ahead of what you decided (provided you still love the trade), and also try and not watch the market every second of the day.....another way to effectively implement this strategy is to make sure that your position size is not too big...one way to do this is to take the "Pillow Test”, a rule I came up with years ago which says that if you can't sleep at night then your position is too big and you won't be able to think clearly.....so reduce the size until you can sleep soundly on your pillow :)...

ECONOMIC CALENDAR

 TECHNICAL OUTLOOK

 EUR/USD: The latest round of setbacks have stalled ahead of some key multi-week support by 1.3000 and from here we still can not rule out risks for additional consolidation above 1.3000, before considering bearish resumption. Ultimately, any rallies towards 1.3300 should be well capped, while a break and daily close back under 1.3000 would accelerate declines to the early 2012 lows at 1.2660.

 USD/JPY: The latest pullback from the 2012, 84.20 highs was viewed as corrective and it looks as though the market has finally found some solid support ahead of 80.00. The setbacks have stalled by the top of the daily and weekly Ichimoku clouds and we look for the formation of a fresh medium-term higher low somewhere around 80.00 ahead of the next major upside extension back towards and eventually through 84.20. Overall, this is a market that has undergone a major structural shift in recent months and we now see the pair in the early stages of a longer-term up-trend. Ultimately, only a weekly close back under 78.00 would negate.

 GBP/USD: The recent break back above 1.6000 now opens the door for fresh upside towards the October 2011 peak at 1.6150. However, any additional gains beyond 1.6150 should prove hard to come by, and we once again see risks for a bearish reversal in favor of renewed weakness back down towards key support by 1.5800. A break and close below 1.5800 will then accelerate declines. Ultimately, only a weekly close above 1.6150 would negate underlying bearish bias.

 USD/CHF: Our core constructive outlook remains well intact, with the latest setbacks very well supported by psychological barriers at 0.9000. It now seems as though the market could be looking to carve a fresh higher low, and we will be watching for additional upside back towards the recent range highs at 0.9335 over the coming sessions. Above 0.9335 should accelerate gains towards the 2012 highs by 0.9600 further up. Ultimately, only back under 0.9000 delays and gives reason for pause.

Scandis Consolidate Ahead of Next Major Downside Extension

 18 April 2012 05:48 GMT Eur/Sek Setbacks have once again been very well supported ahead of the 8.75 level and the market looks to once again be attempting to carve a bottom in favor of renewed strength back towards the 8.90 area over the coming sessions. Ultimately, only back below 8.75 negates and gives reason for concern. Usd/Sek Remains very well supported on any form of a dip, and risks from here are for continued strength back towards the recent multi-day range highs by 6.88. A break above will accelerate further, while only back below 6.57 delays.
Usd/Nok Although the market has been confined to a multi-day consolidation, dips have been very well supported and we continue to see evidence of an eventual break of this range to the upside. Look for a push back above 5.84 to confirm bias and accelerate gains. Only back under 5.65 would delay and give reason for concern.
Eur/NokLooks to be finally attempting to establish some form of a base after being very well offered over the past several weeks. The latest break back above 7.49 triggered a double bottom which has already reached its 7.60 area objective. From here, look for additional gains towards 7.75 over the coming weeks. Ultimately, only back under 7.45 delays.