Dollar pares gains ahead of BofA and CITI Q2 results

JPMorgan posted better than expected Q2 earnings (28c vs. 5c) although there was some concern in the release that they see losses in cards until end 2010. Also thrown in to make things interesting was surprisingly good Jobless Claims data which dropped last week more than economists forecast, increasing demand for higher- yielding assets. Initial jobless claims dropped to 522k from 565K last month. US equities advanced 1% as earnings continued to surprise to the upside. Financial equities remained flat however after a major bank tempered its better than expected earnings by cautioning on the outlook for consumer loans. The day’s other major earnings releases, Google ($5.30 vs. $5.08) and IBM ($2.32 vs. $2.01) also beat estimates with the latter revising up it’s full year outlook continuing to support the healthy tone shown by the tech sector recently. Risk currencies rallied on overnight but with a noticeable slowing in the pace of their gains. EUR/USD fell back to 1.4100, AUD/USD dropped back below 0.8000 while GBP/USD dipped to 1.6350. The JPY made gains with USD/JPY falling to 93.50 while EUR/JPY was sold off to 132.00. CAD also underperformed giving back some of its outsized gains this week which had been driven by the improving risk climate although it remained the best performer for the week to date.

[B]News and Events:
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JPMorgan posted better than expected Q2 earnings (28c vs. 5c) although there was some concern in the release that they see losses in cards until end 2010. Also thrown in to make things interesting was surprisingly good Jobless Claims data which dropped last week more than economists forecast, increasing demand for higher- yielding assets. Initial jobless claims dropped to 522k from 565K last month. US equities advanced 1% as earnings continued to surprise to the upside. Financial equities remained flat however after a major bank tempered its better than expected earnings by cautioning on the outlook for consumer loans. The day’s other major earnings releases, Google ($5.30 vs. $5.08) and IBM ($2.32 vs. $2.01) also beat estimates with the latter revising up it’s full year outlook continuing to support the healthy tone shown by the tech sector recently. Risk currencies rallied on overnight but with a noticeable slowing in the pace of their gains. The week drew to a close in subdued fashion with traders winding down for the weekend (Monday is a Japanese holiday so we can assume the Asian session will be less than exciting at the start of next week) and rather nervously waiting for Citigroup and Bank of America to announce their results. The above concerns alongside news of two large explosions in Jakarta caused the market to slide back towards risk aversion. This saw the high-yield currencies give back some of the gains made the previous day as the Dollar clawed back a small part of yesterday�s losses. EUR/USD fell back to 1.4100, AUD/USD dropped back below 0.8000 while GBP/USD dipped to 1.6350. The JPY made gains with USD/JPY falling to 93.50 while EUR/JPY was sold off to 132.00. CAD also underperformed giving back some of it’s outsized gains this week which had been driven by the improving risk climate although it remained the best performer for the week to date.

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Today’s Key Issues (time in GMT):[/B]

10:00 EUR Euro-Zone Trade Balance MAY 0.0B vs. 2.7B
10:00 EUR Euro-Zone Trade Balance sa MAY 0.8B vs. -0.3B
10:00 EUR Construction Output SA MoM MAY prev. 0.60%
10:00 EUR Construction Output WDA YoY MAY prev. -4.70%
12:00 CAD Consumer Price Index MoM JUN 0.30% vs. 0.70%
12:00 CAD Consumer Price Index YoY JUN -0.30% vs. 0.10%
12:00 CAD Bank Canada CPI Core MoM JUN 0.00% vs. 0.40%
12:00 CAD Bank Canada CPI Core YoY JUN 1.90% vs. 2.00%
13:30 CAD Leading Indicators MoM JUN 0.10% vs. -0.10%
13:30 USD Housing Starts JUN 528K vs. 532K
13:30 USD Building Permits JUN 524K vs. 518K

[B]The Risk Today: [/B]

[B]EurUsd:[/B] Upside momentum improving with focus on 1.4201 near-term resistance. Support at 1.3830.

[B]GbpUsd:[/B] Breaks above initial resistance at 1.6380 � upside trigger for 1.6743 trend high. Support at 1.5983 ahead of 1.5803 key support.

[B]UsdJpy:[/B] Focus back on near-term support at 92.72 ahead of 91.74 key support. Remains vulnerable below 97.19.

[B]UsdChf:[/B] Breaks below key support at 1.0707 - exposes 1.0633 support. Initial resistance at 1.0956.

[B]Resistance and Support:

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By[B] Loic Bondiguel [/B]- ACM Advanced Currency Markets, Geneva, Switzerland