• USD: Lower, at six week low, CIT avoids bankruptcy, NABE says US recession may be ending, LEI rises
  • JPY: Lower, markets closed for holiday, tracking risk sentiment
  • EUR: Higher, supported by improving risk sentiment, gains in cross trade to JPY, German factory prices fall
  • CHF: Higher, Swiss import and export prices fall most since 1986, threat of intervention
  • GBP: Higher, house price index rises, mortgage lending rises to a six-month high
  • CAD and AUD: AUD & CAD higher, crude prices top $64 a barrel, net investment flows to Canada surge

Overview

USD and JPY start the week lower as risk sentiment continues to improve. The combination of better than expected US corporate earnings, report that CIT will avoid bankruptcy, Morgan Stanley’s upgrade of its target for the Kospi index and NABE said that the US recession is easing fuels a rally in global equity markets and improving risk sentiment. USD is trading in a six-week low mainly pressured by report that CIT has secured a $3 bln loan to avoid bankruptcy. GBP was supported by report of rising UK house prices and improving risk sentiment. UK mortgage lending hit a six month high. EUR traded sharply higher supported by strong gains in cross trade to the JPY. The commodity currencies rallied in reaction to higher crude prices which topped $64 a barrel and optimism about the global recovery. CAD was supported by report a surge in foreign investment flows to Canada. The trade awaits this week's testimony by Fed Chairman Bernanke before Congress on Tuesday and Wednesday for clues to his view on the economic recovery and whether the Fed is nearing a decision on when to begin to exit quantitative ease. If Bernanke expresses optimism about the US economic outlook his comments could further pressure the USD. If Bernanke outlines an exit strategy from quantitative ease and signals a time frame for implementation of exit strategy this could revive concern about whether the US recovery is sustainable and encourage fresh demand for the USD. In addition the prospect that US interest rates will eventually need to rise as the recovery becomes sustainable could also cap the USD selloff. Focus turns to this week's release of a number of US corporate earnings reports. FX direction will continue to track equities and risk sentiment. USD sentiment has turned quite negative. According to CFTC commitment of traders report released Friday for the IMM net short USD positions are at the highest level since July 2008.

Today’s US data:

June leading economic indicators rose 0.7, a 0.4% rise was expected. This was the third consecutive month that the leading indicators have risen and suggests US recession is nearing an end.

Upcoming US data:

On July 23rd initial jobless claims for the week ending 7/18 will be released expected 540k compared to 522k last week. Existing home sales for June will also be released on July 23rd expected at 4820k compared to 4770k last month. On July 24th July final University of Michigan consumer sentiment will be released expected 73.4 compared to 70.4 last month.