Poor housing starts and lower than expected industrial production are forcing traders to rethink their position that the Fed will raise rates in June or August. There is even some talk that rates will not rise for at least a year. Some traders are now convinced the Fed will leave rates at current levels until the employment situation turns around. Traders in the financial markets in Chicago lowered the probability that rates would rise in June from 26% to 14%. The probability of a rate hike in August and December was also lowered.

The Euro rallied versus the Dollar as traders took back some of the losses from last week. So far this week, the Dollar has not seen any bullish news, which is making the Dollar bulls nervous. The lack of support from the G-8, and poor economic reports are enough to cause traders to lighten up short positions in the EUR/USD. It looks as if this pair is poised to remain inside of the 1.6019 to 1.5283 range it has traded in for the last two months.

Technically, look for this current rally to reach a retracement area at 1.5573 to 1.5637. With the main trend down, watch for selling pressure.

Light Profit Taking Turns USD/JPY Lower

The USD/JPY followed through to the downside following Monday's rejection of the last main top at 108.61. A mixed stock market and reports that the Fed will not be raising rates this year forced some of the weaker longs out of the market.

Light profit taking seems to be dominating the market, as traders seem content with taking a little off the table following the recent rally from 104.39.

Chart watchers should note that the main trend is up, but overbought. The current pattern suggests a break to 106.49 105.99 is likely. Look for a buying opportunity in this zone especially at 106.14.

High Inflation Pressures British Pound

A higher than expected inflation report turned Monday's buyers into sellers as the GBP/USD broke hard on Tuesday. Traders cite the Bank of England's reluctance to raise rates as one of the reasons for the decline. Traders are also taking this as a sign that the economy is weaker than originally thought.

On Tuesday, Bank of England Governor Mervyn King explained that the path to bring inflation with the central banks target is "uncertain." This comment was made after it was announced that inflation has risen to 4%, its highest level in 10 years.