Bloomberg reported on Tuesday that European retail sales dropped the most in four years in April. This key report drew no immediate comment from the ECB but will definitely have to be a concern. Like other central banks, the ECB may soon be facing the issue of battling inflation along with providing economic stimulus.

The EURUSD traded in a tight and narrow range on Tuesday as traders continued to make position adjustments ahead of the April 30 Fed interest rate announcement. 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.

The initial reaction following the release of the Fed report may trigger a short covering rally in the Euro as the market has been down for several days. Longer-term traders will focus on the Feds language regarding future cuts. The next major move in the Euro will hinge on the strength of the Fed's message.

Sellers hit the GBPUSD hard as a Bank of England report showed that mortgage approvals fell in March to the lowest level in nine years. For weeks, the two concerns in the U.K. have been the credit crunch and the housing markets. This report highlighted the issues in both areas. Banks in the U.K. have limited their lending practices among each other, and now it looks as if they have tightened up with the mortgage applicant as well.

The news just keeps coming out bearish for the Pound even after the Bank of England offered to buy back mortgages from banks in order to stimulate lending. Tuesday's report is most likely to show up in the almost dismal housing numbers. Traders took on heavy short positions on Tuesday in anticipation of another interest rate cut on May 8.

The Bank of England is walking a narrow ridge as higher energy and food prices have been sending inflationary signals while the weak economy is calling for lower rates.

Stay on the short side as the Fed is expected to hold rates steady after April 30 while the BoE is expected to cut once again.

There was not much to report on regarding the USDCAD. Wednesday's interest rate cut has already been priced into the market. Traders are looking for the U.S. economy to improve over the Canadian economy. The variable will be commodity prices. A pick-up in wheat, gold and crude oil is likely to provide support to the Canadian and prevent a breakout rally in the U.S. Dollar.

The main commodity to watch is the crude oil. Speculative fund buying and sporadic bullish fundamental news has been fueling the rally. Talk of raising margin requirements may lead to fund liquidation. If the oil breaks, then look for the USDCAD to soar.

Bearish traders are already pricing in another 50 bp interest rate cut at the next Bank of Canada meeting on June 10. Be prepared for choppy two-side trading around par, but lean to the long side as the U.S. economy begins to improve.

Signals coming out of Australia have been mixed. Recent reports have been picking up signs of inflation, and the Aussie rallied last week to a 24-year high on news that the Reserve Bank of Australia may raise rates again on May 6 to combat inflation. On Tuesday the Conference Board put a negative spin on the economic situation with a report that Australian Index of leading economic indicators fell in February for a third month.

With the main trend up the best opportunity is still on the long side. Look to buy dips for another drive to a new all-time high.

Despite periodic short-covering rallies, the trend in the NZDUSD is down. Consumer confidence is already down, and Tuesday's government report showing that the annual trade deficit unexpectedly widened is a sign that the Bank of New Zealand is likely to lower rates once again at its next meeting on June 3. Continue to look for selling opportunities, but be prepared for short-covering rallies, as the market is technically oversold at the current price level.