Talking Points:

- EUR/USD now +5% above ECB's 2016 technical assumption.

- USD/JPY completes measured move from February H&S pattern.

- If you're on the wrong side of a crowded position, leverage can be more harmful than helpful.

After a week-plus away from the markets, it seems that risk was never given the "all clear" that was so close to being achieved. The Bank of Japan, after all, was a major let down; and the Federal Reserve's lack of concern over global developments made clear that they're just itching to hike rates. Unfortunately, with US growth sluggish in the face of what have been steadily improving labor markets, Fed officials have some dissonance to resolve before markets calm back down.

Even as the USDOLLAR Index starts May sliding into its lowest levels in eleven months, there is some reason to be suspicious - at least not complacent - about moves in some of the individual components. EUR/USD, for example, is now over +5% above the ECB's 2016 technical assumption for 2016 ($1.0900), which in the past, when having approached this level, has spurred harsh commentary from policymakers regarding the exchange rate. Even as ECB officials have said that the FX channel is no longer being explicitly targeted, this only may mean a bit more wriggle room for the Euro - especially at these levels.

Concurrently, markets are tripping over themselves due to the lack of Bank of Japan action - USD/JPY just suffered its worst week since October 2008. This seems somewhat ironic, considering sentiment ahead of the meeting was that the BOJ had to do something or else, but no one actually believed that they would do anything of substance. Furthermore, with the US Treasury citing Japan as an offending country on its FX manipulation list, it appears we're at a major sentiment extreme with respect to the Yen. It's thus difficult to ignore the fact that USD/JPY has started to slide below ¥106.50, the topside of an area that could be considered the achieved target of the head & shoulders pattern that emerged in February.

See the above video for technical considerations in EUR/USD, USD/JPY, Gold, Silver, Crude Oil, the US S&P500, and the USDOLLAR Index.

Read more: Silver-Gold Relationship Evolving in a Bad Way for US Dollar

If you haven't yet, read the Q2'16 Euro Forecast, "EUR/USD Stuck in No-Man’s Land Headed into Q2’16; Don’t Discount ’Brexit’," as well as the rest of all of DailyFX's Q2'16 quarterly forecasts.

--- Written by Christopher Vecchio, Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

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