Watch FOMC and Dollar Index for direction....

We finally had the sell off in USDCAD, as posted last week (http://qitrading.blogspot.co.uk/2012/04/using-correlations-and-seasonals.html). Whilst it stalled at the lower support level of the range, it resulted in a decent profitable trade and is still in play for more downside momentum.

However, we have to look at the FOMC statement on Wednesday for more a clear direction of the US Dollar. In recent weeks the Fed's and Ben Bernanke's comments have been mixed about QE3. The positive data from the US, with negative data from the Eurozone and issues over USA/Canada refusing to help the IMF for a Euro bailout fund has been weighing on the markets and which is why most markets have been consolidating. The best recent trades have been the cross pairs, matching strength and weakness, like GBPJPY for example.

The chart below of the Dollar Index, shows we are clearly in a wedge and hence in a consolidating market. If we get a significant break through the downside support level then we will most likely see rallies in risk based currencies such as EUR, GBP and AUD. However, if price bounces off then look for the next resistance level to be hit and the markets to stay consolidated. The bias is a break to the downside, as the most recent high was lower than the previous high, however, only a break through the previous low will be a confirmation of this.

Many traders I have spoken to recently have been trying to trade aggressively in these type of markets and have given back months of hard earned profits. The most important aspect of trading is to have an objective focus and patience and discipline in waiting for it to play out. This week's focus is apparent, wait for clear direction and match strength and weaknesses, just like last week.

In the next week look out for my psychology and commodity trading posts.

Happy Trading!