The EURUSD moved in a tight and narrow range as traders continued to make position adjustments ahead of the April 30 Fed meeting.

While the market is trading for a 25 bp reduction, the focus, however, will be on the Fed's language. Expectations are for the Fed to announce that it is close to ending its aggressive interest rate reduction campaign.

Jean Claude Trichet maintained the ECB's hard-nosed stance against lowering interest rates until inflation is under control. Trichet stated that the ECB’s responsibility is to preserve price stability in the medium and long term.

Trichet's comment reminds us of a key point: Know the time period you are trading. In the short-run, the Dollar is expected to gain on the Euro as those traders who thought the financial situation in the U.S. was going to worsen built in huge premiums in anticipation of additional rate cuts throughout the year. Because of the recent reports showing some growth, the Fed is expected to announce a less aggressive plan. This action is causing long Euro traders to adjust their positions as more money is being put back into U.S. Dollar-based assets.

Medium to long-term traders are still looking at a strong Euro versus the Dollar. They cite the fact that the ECB is not planning to cut rates this year and have been threatening to actually raise rates if necessary.

The conclusion is that the EURUSD is likely to feel short-term pressure on the downside as it seeks a level comfortable enough for the long-term traders to begin building their bullish positions once again.

The key will be to focus on the interest rate differential. In the short-run, the differential may narrow as financial traders adjust their U.S. bond to Euro Zone bond positions. In the medium to long run, any additional rate cutting by the U.S. or any rate hikes by the ECB will cause a widening once again which will ignite the strong Euro uptrend.

GBPUSD is still range bound and awaiting fresh news to give it direction. The trend is up on the weekly chart, but down on the daily chart, which is adding to the confusion. In addition, the tightness in the UK credit market and the dangerously poor housing industry is leading to selling on rallies. Bullish traders have been willing to be patient as they wait to see if the Bank of England mortgage buy-back program begins to turn the housing market and free up lending between banks. Strong retail numbers have also been perceived as bullish. Higher oil and food prices are making it difficult for the BoE to cut rates any further. The next Bank of England meeting is May 8.

Lower commodity prices leading to a decline in exports is raising concerns about the Canadian economy's ability to pull out of the current economic decline. The fall-off in key commodities such as gold and wheat have helped bring down the export numbers. Higher crude oil prices have been providing some near term support to the Canadian Dollar. The situation has caused traders to already begin pricing in another rate cut by the Bank of Canada on June 10.

AUDUSD and NZDUSD pairs gained ground on Monday as strength in the commodities markets particularly Gold and Crude Oil led to short covering.

After posting a fresh 24-year high last week, the Aussie sold off on profit taking as Gold and Crude Oil weakened late in the week. It seems these traders stepped right back into the long-term trend and bought again after a two-day sell off. Last week's comments from the Reserve Bank of Australia are still on the mind of the bulls. The Reserve Bank stated that inflation was still a concern and that interest rates may have to be raised on May 6 to prevent it from getting out of control. Continue to look at the long side, as traders seeking higher yields will help push the Aussie higher.

The short-covering rally in the NZDUSD is expected to be short-lived as the New Zealand economy is still showing signs of weakness. Consumer confidence is down and the Bank of New Zealand is already threatening another round of interest rate cuts at its next meeting on June 3. Look to sell a 2 to 3-day rally.

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