NOT GETTING THE MESSAGE - There is clearly no direction in currency markets at the moment. The Euro continues to yo-yo, while all other currencies are locked in familiar ranges. The FX market has priced in as much Fed as it can get its hands on, and has appropriately discounted some of the anticipated shift in Fed policy towards a path of less accommodation. Yet elsewhere, there has been no sign of let-up, with the US equity market still trading at record highs. This is why so much of my focus over the past several months has been on US equities and away from FX. US equities have become like that annoying guy at the party who just won't leave when everyone else has long since left. US equities could have cared less about Wednesday's abysmal pre-Fed event risk GDP print, or maybe even found comfort in the fact that the data continued to support free money incentive to buy stocks. Whatever the case, until this market starts to show some real signs of the onset of a legitimate correction, we shouldn't expect to see a pick-up in volatility anywhere else. Though the Fed did show an upgraded economic outlook, there was nothing else to sink your teeth into yesterday, and the absence of a post-decision presser, made for an even less compelling event. So sell in May and go away? I certainly hope so. It would definitely be refreshing to see the reliability of this adage, as the timing is already as good as ever.
OK HERE IS SOME FX - Technically, a bearish close in the S&P on Wednesday could have made the prospect for a reversal in May look extremely sexy, with the near formation of a bearish outside month. A bearish outside month that posted a fresh record high, with technical studies overextended would have been too good to be true, and so, on the final day of April, we were disappointed with a bullish close and the pattern negated. If you insist on watching the Euro, keep an eye on 1.3905 and 1.3785. A daily close above or below one of these levels will be what is required to get things moving. Otherwise, stand aside. Right now, it is more important to keep an eye on USD/JPY and EUR/CHF. Any downside pressure in these markets, would help to confirm my bearish outlook for risk assets. USD/JPY put in a bearish close on Wednesday, despite the gains in stocks, and the divergence is one well worth considering. EUR/CHF would need to establish back below 1.2200 to add additional confirmation. Finally, Cable has been very well bid over the past several months, but now that we are trading up towards 1.7000, I would remind of the monthly chart here, which shows some formidable resistance going back to 2009 around this psychological barrier. If you have been long Cable for some time now, you may want to consider playing your bullish GBP bets through other currencies than the US Dollar going forward. My recommendation would be to rotate into long Sterling/Commodity Bloc-Emerging Market FX.