Bernanke�s Semi-Annual Monetary Policy Testimony & Corporate Earnings will be Key

Risk appetite continues to gain traction at the start of this relatively quiet week. Equity markets have continued were they left off on Friday, as news that CIT might avoid bankruptcy, or a government bailout, by accepting $3bn loans from bondholders. The JPY has come under significant selling pressure across the board as, rising appetite for risk, political uncertainly and comments from the new Vice-Finance minister for Japanese international affairs Tamaki verbal intervention weighed on the JPY. This week, market participants will be intently focused on Fed Chairman Bernanke semi-annual monetary policy report testimony to Congress (Tuesday morning EST) and corporate earnings.

[B]News and Events:
[/B]
Risk appetite continues to gain traction at the start of this relatively quiet week. Risk correlated trades have seen decent buying, but overall volume has been light. Equity markets have continued were they left off on Friday, as news that CIT might avoid bankruptcy, or a government bailout, by accepting $3bn loans from bondholders. The EURUSD broke horizontal resistance at 1.4190 but we are seeing momentum wane around the 1.4220/30 levels. The JPY has come under significant selling pressure across the board as, rising appetite for risk, political uncertainly and comments from the new Vice-Finance minister for Japanese international affairs Tamaki verbal intervention weighed on the JPY. The JPY traded up to 76.60 and 94.75 against the AUD and the USD, respectively (recent drop in volatility has also encouraged carry traders). This week, market participants will be intently focused on Fed Chairman Bernanke semi-annual monetary policy report testimony to Congress (Tuesday morning EST) and corporate earnings. In regards to Bernanke, markets are buzzing with rumors that the Chairman will begin discussing exit strategies. With markets roughly pricing in 75bp of tightening in the next 12 months, participants want a signal that the Fed is already preparing to drain liquidly. Perhaps the biggest risk to the current risk correlated trade is this week�s corporate earnings release. Important names such as Apple, Caterpillar, Texas Instruments, McDonalds, Coke Cola and American Express are releasing earnings and expectations are high. However we are concerned that true consumer / global demand has not recovered and expect earnings to underperform. Should these numbers paint a bleaker picture then last week�s strong financials reports, we should see USD rally (this is baseline scenario). In addition, we will be watching the sterling cautiously. With the BoE MPC minutes being released on Wednesday there is a risk that markets were overly optimistic around the last monetary policy meeting, in believing that a pause in asset purchases was in the cards. Last week there was more than one comment, which attempted to lower this expectation. While the GBP is still trading mainly on risk appetite, the recent build up in GBP longs positions suggest that an increase in asset purchases should trigger a decent GBP sell off near term.

[B]
Today’s Key Issues (time in GMT):[/B]

08:30 GBP BoE publishes Trends in Lending report Jul
06:00 EUR Germany: Import prices, % m/m (y/y) (to 24/7) Jun) 0.0 (-10.4) prior
06:00 EUR Germany: PPI, % m/m (y/y) Jun 0.4 (-4.3) exp
08:30 GBP BoE provisional estimate of M4, % m/m (y/y) Jun 0.2 (16.6) prior
08:30 GBP BoE provisional estimate of M4 lending, % m/m (y/y) Jun 1.0 (11.1) prior
10:00 EUR Germany: Bundesbank bulletin published
17:30 USD FRB of Atlanta President Lockhart speaks on the U.S. economy, financial conditions and outlook
14:00 USD Leading indicators, % (y/y) Jun 0.5 (-1.4) exp, 1.2 (-1.8) prior
23:50 JPY BoJ minutes published

[B]The Risk Today: [/B]

[B]EurUsd:[/B] Strong move this morning penetrated horizontal resistance at 1.4220. However, upside momentum seems to be waning and stochastic are indicating overbought conditions. Intraday resistance stands at 1.4290 and support 1.4103 5d MA.

[B]GbpUsd:[/B] Today�s move broke key resistance at 1.6380 and now targets 1.6743 trend high. As with a majority of the majors stochastic are signaling overbought conditions. Between 1.6100 and 1.6550 is a real mess. Despite current bullish trend we expect a short term correction to 1.6145 support.

[B]UsdJpy:[/B] Risk appetite has taken its told on the JPY. The pair remains vulnerable to pullbacks below 97.19. Daily cloud covering should provide resistance at 96.80. Move below 93.20 would end bullish rally and trigger a move back to 91.00.

[B]UsdChf:[/B] Today�s breaks below key support at 1.0707 - exposes 1.0633 support. Initial resistance stands at 1.0810. Current test of sideways channel support (between 1.1000 - 1.0600) will have traders building long positions around this barrier.

[B]Resistance and Support:

[/B]

By[B] Peter Rosenstreich [/B]- ACM Advanced Currency Markets, Geneva, Switzerland