Forex - Strong Corporate Earnings Give Risk Correlated Assets a Boost

Forex News and Events:

FX markets are continuing to respond well to the resurgence of risk appetite with risk corrolated currencies moving lock-n-step. The recent catalyst was the better than expected Goldman Sachs second quarter results. This pushed US equities higher (although still down for the month) and continues to resonate positively across asset classes. Crude wti prices are up 1.50% to $60.44bll, while gold traded shortly above $936.00oz before retracing slightly. The EURUSD continues to catch a strong bid on the medium term uptrend, but is still struggling with the noise in front, around the 1.4050 / 80 levels. While we are cautious about the sudden shift in optimism, especially during these summer doldrums, we believe the recent pullback in risky assets has provided traders with a strong setup, should risk appetite entrench itself. Along the lines of rally in risk-correlated assets, the AUDUSD is following commodities higher for a test of 0.8000 psychological resistance. Another factor that has supported the recent rally was the positive US retail sales and PPI (which helped offset an earlier negative German ZEW economic sentiment release 39.5 vs. 47.8 exp). While many economists point to the large contribution of gasoline prices, overall participants spun it as positive. Back tracing slightly from the recent BoE meeting, which MPC members opted not to expand their QE program, BoE Deputy Governor Charles Bean attempted to clarify the point that "We are committed to buying £125bn of assets that will take us through to August. We decided last week there was no need to make a firm decision. August is when we publish papers on the economy and it's a natural point at which to take stock", sound very much like expansion is a high possibility given the forecasted economic climate. The initial market reaction was GBP positive, as it affirmed policy makers commitment to QE. However, while the core driver of sterling will continue to be global fx trends, we think that expansion could erode the markets confidence in the UK . In Japan, the BoJ wrapped up its two-day meeting deciding to hold rates at 0.10% as was universally expected. However, one policy change was the extension of their temporary asset purchases and funding operations. In addition, the BoJ adjusted their growth forecasts lower to -3.4% and 1.0% in 2009 and 2010 respectively. As with the sterling, larger trend will define prices. However, with risk appetite coming back into play and the domestic economy still fragile, we expect the JPY to come under significant selling pressure. We now doubt the markets commitment to test the USDJPY 90 level. With a rash of scheduled releases, including the FOMC minutes (no major surprises expected) and additional corporate earnings our pro-risk trades will be nimble but overall favour selling USD and JPY.

Today's Key Issues (time in GMT):

07:15 CHF Adjusted real retail sales, % y/y May 1.2 exp
08:00 NOK Trade balance, NOK bn Jun 22.2 exp
08:30 GBP Claimant count unemployment, change K Jun 43.0 exp, 39.3 prior
08:30 GBP ILO unemployment rate, % May 7.4 exp, 7.2 prior
08:30 GBP Average earnings, % 3m y/y May 2.1 exp, 0.8 prior
08:30 GBP Core average earnings, % 3m y/y May 2.6 exp, 2.7 prior
09:00 EUR HICP, % m/m (y/y) Jun 0.2 (-0.1) exp, -0.1 "flash" prior
09:00 EUR HICP ex tobacco, index (2005 = 100) (y/y) Jun 108.10 (-0.04) prior
09:00 EUR ‘Eurostat’ core (HICP x fd, alc, tob, ene), % m/m (y/y) Jun) 0.0 (1.5) prior
09:00 EUR ‘ECB’ core (HICP x unproc.fd, ene), % m/m (y/y) Jun 0.0 (1.5) exp
12:30 CAD Manufacturing shipments, % m/m May -0.8 exp, -0.1 prior
12:30 USD CPI, % m/m (y/y) Jun 0.6 (-1.6) exp, 0.1 (-1.3) prior
12:30 USD Core CPI, % m/m (y/y) Jun 0.1 (1.7) exp, 0.1 (1.8) prior
12:30 USD NSA CPI, index Jun 213.856 prior
12:30 USD Empire manufacturing, index Jul -5.00 exp, -9.41 prior
13:15 USD Industrial production, % m/m (y/y) Jun -0.6 (-13.7) exp, -1.1 (-13.5) prior
13:15 USD Industrial production: mfg, % m/m (y/y) Jun -1.0 (-15.3) prior
13:15 USD Capacity utilisation, % Jun 67.9 exp, 68.3 prior
18:00 USD FOMC meeting minutes published
22:45 NZD CPI % q/q Q1 0.5 exp, 0.3 prior
23:50 JPY Tertiary industry index , % m/m May 0.3 exp, 2.2 prior

The Risk Today:

EurUsd Starting to see some direction. The single currency has finally broken its 1.3825 to 1.4050 range and is looking to test the 1.4140 resistance (broader range of 1.3835 to 1.4140). Given the lethargic month so far we have little faith in a full breakout. Intra day support stands at 1.3970.

GbpUsd Moving averages and momentum signals show cable to be mildly bearish, but pair is still grinding higher. Todays move now puts the pair clearly above the 5 and 21 day ma (although no daily close as of yet) and clear the way to test 1.6380 (trigger a move toward 1.6580).

UsdJpy USDJPY broke out of its previous 5 day range today signaling further upside potential. We no longer see strong JPY buying currency and see recent move as more then just corrective. 94.10 is our breakout zone then expect weekly cloud covering at 95.50 to come into play.

UsdChf A sideways moving, rangebound USDCHF sits in it's two months old 1.1020 to 1.0630 zone. We see unexciting price action and choose to avoid this pair until a concerted move in either direction is seen. There is a small trendline which comes in at 1.0770/80 which could provide intraday support.

Resistance and Support:

S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot