Following a two-day setback, the U.S. Dollar regained strength as an announcement by Russia to cut its holdings of U.S. Treasuries spooked investors into the safe-haven Dollar.

The same announcement helped put in an early top in the equity markets and chased traders into lower risk assets.

The Treasury Bond market also fell hard as yields shot up as traders braced themselves for more supply and less demand for Treasuries in the future.

It may take a few days for the Forex markets to adjust to the Russian threat. In the meantime, volatility could pick up as a rally in the Dollar may catch many traders by surprise. After the huge drop in the Dollar, short positions have to be large. Today's trading action in the major currencies indicates that Dollar buyers may have already stepped in. A rally by the Dollar through Monday€™s high may ignite the start of a massive short-covering rally.

Now that the near-term fundamental picture seems to be developing, the technicals are starting to show where the Euro can go. The sharp sell-off in the EUR USD has this market in a position to challenge a pair of main bottoms at 1.3804 and 1.3791. A break through these two bottoms will change the trend to down and fuel further weakness to the 50% retracement price at 1.3611.

Up trending Gann Angles from previous bottoms at 1.3422 and 1.2884 indicate that June 11th and 12th are the best dates for the market to reach its downside target.

If the Dollar begins to rally, commodity related currencies should suffer the most. This explains why the British Pound did not break as much as other currency pairs.

The GBP USD produced two consecutive days of higher tops and higher bottoms and formed a new Main Bottom at 1.5801. This action caused the trend line indicator to move up from 1.4397. A move through 1.5801 will turn the Main Trend to down.

On Monday the GBP USD confirmed last week's closing price reversal top. The first leg down was 1.6663 to 1.5801. Currently this pair is retracing this range. The first upside objective at 1.6232 to 1.6334 has been reached. There was not much of a technical bounce to the downside following a test of this level which means the buying is still strong.

A close over the .618 number at 1.6334 indicates that there is room to rally to the multi-month high at 1.6663. A close under the 50% level at 1.6232 will indicate weakness and could trigger a test of the swing bottom at 1.5801.

If this pair gets weak and the trend turns to down then look for an acceleration to the downside with a test of 1.5530 likely.

A stronger Dollar should mean a decline in commodity prices. This translates into lower gold and crude oil prices. If the trend begins to turn down in these two markets then look for downside pressure on the Canadian Dollar.

The USD CAD Main Trend on the daily chart is down, but today's action indicates that it is setting up for a test and possible breakout through the last Main Top at 1.1290. A move through this price will turn the Main Trend up.

Earlier this week the rally confirmed last week's closing price reversal bottom. The first leg up from the bottom was 1.0783 to 1.1290. This range created a retracement zone at 1.1040 to 1.098.

Following two days of lower-lows, the USD CAD tested this retracement zone and stopped at 1.0940. The subsequent reversal to the upside regained both 1.0980 and 1.1040 on a closing basis. This action indicates that the market may be setting up for a test of the Main Top at 1.1290.

A breakout through this price will turn the Main Trend to up and indicate a possible longer-term rally to 1.1922.

The swing chart is indicating the possibility of a short-term rally to 1.1448 by June 16th.

This entire bullish set-up will be negated by a close under 1.0980.

Traders should watch to see if Russia follows through on its threat to cut its interest in U.S. Treasuries. If they are serious then the Dollar is in for a heck of a run to the upside. This would put tremendous pressure on commodity based currencies such as the Canadian Dollar, Australian Dollar and New Zealand Dollar.

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