Regional Trading Patterns Emerge

There has been a period of separation in the major pairs in recent trading, as the market shifted its focus to regional stories from a broader view of the global economy. The S/P higher - Usd lower correlation had no real ground over the last few sessions, as investors based their currency valuations on the outlook of future interest rate spreads.
This was a real boost for the Aud and for the Cad since the business cycle in both countries is perceived as very strong. The Reserve Bank of Australian is already in a tightening cycle, being the only major bank doing so, while the Bank of Canada is expected to begin raising as soon as June or July. This should support further Aud and Cad strength over the coming months.
Even though the U.K. economy is still re-building, the British pound was the best performing currency of the month. Despite the ultra-loose monetary policy of the BoE, the CPI rate of inflation read is very high, and the prospects for it falling are very low, which is supporting the long side of Gbp/Usd.
Expectations for a rate hike were relative low coming from the BoE, but the high level of inflation will probably force the central bank to re-adjust its policy before the end of the summer months. Adding upside pressure on the Gbp are the solid U.K. macro numbers seen lately, that more often than not beat forecasts.
At the bottom of the major pair ladder, traders find the Euro-area, which has been hit strongly by the perception of sovereign debt problems. There are views that the Euro-area is heading towards a breakdown, and this makes most institutional investors question any long=term, long-Eur positions.
The chances of a real breakdown in the Euro-area are very small, but the market is currently pricing in this choice, and for now, this is all that seems to mater. Nonetheless, the problems in Greece and the slow moving economy will keep ECB rates on hold for an extended period.
Unless anything major happens in the global macroeconomic picture, these will be the trends of the currency market for the upcoming period. Positive equity and commodity will favor the quality/growth side of the major currencies, over the safety of the Usd, but going forward, it is all about regional strength.
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