The shift in investor sentiment implies that the earnings season will proceed with more realism and safe-haven assets will remain in demand. Commodity bloc currencies are pulling back because hopes for a speedy reflation require further confirmation while equity-sensitive currencies are in danger of being affected by a correction in stocks, which in turn may find Q1 earnings more sobering. Crucially, the outlook for financials, whose commentaries throughout the first quarter have suggested a turnaround, is now in question, which is not a surprise to Pro Traders Club members as they have been fully warned of the dodginess of prerelease strategies. Results of the bank stress tests are expected in early May, and if government assessments differ significantly from company opinions in earnings reports over the coming weeks, the prospect of further intervention in the financial sector will be hard for equities to stomach in general. We will be sure to keep you advised of dates of release, as we anticipate heightened volatility and anxiety at the time of the release of results. Most currencies are struggling to hold on to correlations at present but further positioning unwinds are inevitable if risk aversion does indeed take hold.

Meanwhile, the BoJ regional managers' quarterly meeting will take place on Friday, at which Governor Shirakawa will speak. Investors will look for any indication that the bank's assessment of the economy will have improved from its recent statement when it noted that "economic conditions are likely to continue deteriorating for the time being". The yen stands to benefit slightly from the sell-off in risk, but we still see the dollar as the safe haven of choice.

Remain bullish on AUD over the medium term owing to the likelihood that the RBA will maintain orthodox monetary policy and as such we have not sold our long AUD call option against a basket of G3 currencies that was instigated in February.

ECB officials continue to offer diverging views on inflation and deflation risks and ECB next steps. ECB Governing Council heavyweight Weber said he saw no strong deflation risk and is "critical of cutting the refinance rate below 1%". But he did say that the ECB will announce a package of unconventional policy measures at the May meeting and could also include an outlook for the medium-term level for the main refi rate. Weber also expected central banks to move to restrictive policy at the right moment and said there is 'no credit crunch' in the Eurozone. ECB Governing Council Member Ordonez also said it would be logical for the ECB to reduce official rates and unconventional measures still remain a possibility. Ordonez also said Spain has run out of room for more fiscal stimulus. But ECB Governing Council Member Orphanides said the risk of deflation has increased recently and that additional policy easing could be warranted, which could include reducing the refi rate below 1%. He also warned that the recession in the Eurozone may be 'deeper' than that elsewhere. These kinds of fissures are highly damaging to sentiment but crucially, it appears that the key members of the Governing Council remain disconnected with market perception and this is already affecting the EUR's performance. Even if risk aversion returns, the lack of aggressive policy measures implies a delay in recovery and funds seeking re-leveraging opportunities will head elsewhere. The above items relating to interest rate spreads and overall growth/weakness developments, are subjects covered in depth on the Chris Lori's "Inside the Banks" six hour course which can be purchased on inquiry, as well, the subject is addressed for several hours of his professional workshop - Charlotte, NC May 1-3.

Sterling has enjoyed a strong rally despite more challenging conditions. The RICS House Price Balance came in better than expected at -73% and the DCLG UK House Price index registered a 12.3% annualised decline. These figures remain very weak but there are signs of stabilization in housing, amid reports that mortgage lending is also showing some improvement. It is believed that the BoE's aggressive nature has put the UK in a strong position for an early recovery but the process will be drawn-out, and at this stage it is too early to expect reflation in the deepest-affected G10 economies, regardless of policy measures. However, there is opportunity for relative value and the market is converging to our view that the UK will outperform the Eurozone up ahead due to economic flexibility and appropriate policy. If risk aversion rises materially we expect GBPUSD to come under pressure, but EURGBP will likely head lower before settling in an 0.85-0.90 range. We target EURGBP at 0.86 in 3m. If you want to learn more of why we took this trade in Pro Traders Club, then either join or attend a workshop to learn real fx trading.

Source: UBS, Bloomberg, Chris Lori CTA