The Fed dropped language of “additional firming” from today's accompanying FOMC statement. The market took this as a sign of a clear bias shift away from rate increases, and possibly even dropping rates as early as this summer. Further, we heard from several of our banks that even the mention of the word “housing” in the text is an indication that the Fed is more worried about sub-prime spill-over than they were letting on to. They said the word “housing." All USD-negative factors. EUR/USD came within inches of our 1.3390 target, EUR/JPY is the on the move towards 157.75, and USD/JPY is in limbo in the meantime. We are still focusing on the massive 5-level EUR/JPY Fib zone between 157.65 and 157.95. There will be a lot of wood to chop to in here, so I prefer to sit and watch.

USD/JPY is still contained in our 4th wave triangle pointing to a test of bottom trendline support at around 116.65. I would love to get a look at a USD/JPY short in our 117.60-80 sell zone after EUR/JPY moves into, and pauses, at the 5-level Fib zone. EUR/USD can do all it wants up here around 1.3400, which will allow EUR/JPY to hold our Fib zone, which then makes room for a lower USD/JPY. USD/JPY stops over 118.00.

Along the story of a lower dollar is EUR/USD looking at wave v of 3 targeting 1.3375, provided 1.3275 holds, as we currently trade 1.3300. Longs can be established between 1.3305-1.3285 with stops below 1.3270 targeting 1.3375. If you get a look at 1.3375, I would almost everything off the table, because major wave 4 is just around the corner. And considering the simplistic formation of major wave 2, wave 4 is scheduled to be long and drawn out before wave 5 takes us up to 1.3400.

Todd Gordon is a Technical Currency Strategist and Fund Trader with GAIN Capital Group.

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