Q2 Earnings season spurs risk appetite

The main contributor to Wednesday�s trading was, once again, the resurgence of risk appetite as investor confidence soared. Better than expected Empire Manufacturing, industrial production, and CPI data, and a lack of disappointing earnings helped push US equities up 3% and weakened the dollar against most of the majors, with the exception of the yen. The 3% gain in stocks transmitted quickly to risk currencies which had a third successive good day (see below) and now having fully erased their losses of the last two weeks thanks, partly, to the FOMC minutes which were less downbeat than previously while US economic data releases were solid. With the Dollar and Yen weakening sharply across the board, commodity prices leapt higher with oil up almost 4% alongside copper with a similar rise. The Far East session today proved to be a little more active than the previous one as risk appetite took a small step backwards after the announcement that talks between the US authorities and CIT Group had ended with no agreement to support the US lender. This caused a little unease amongst traders and some profit taking ensued. EUR/USD slipped below 1.4100 and a macro fund was seen pushing it further towards 1.4070. We heard talk of a large barrier at 1.4200 with sizeable offers trying to protect it from 1.4150.

[B]News and Events:
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The main contributor to Wednesday�s trading was, once again, the resurgence of risk appetite as investor confidence soared. Better than expected Empire Manufacturing, industrial production, and CPI data, and a lack of disappointing earnings helped push US equities up 3% and weakened the dollar against most of the majors, with the exception of the yen. The 3% gain in stocks transmitted quickly to risk currencies which had a third successive good day (see below) and now having fully erased their losses of the last two weeks thanks, partly, to the FOMC minutes which were less downbeat than previously while US economic data releases were solid. With the Dollar and Yen weakening sharply across the board, commodity prices leapt higher with oil up almost 4% alongside copper with a similar rise. There was a lot of talk that real money names were significant participants in all markets having been awakened by expectations by the promising earnings reports from the US corporate sector. However, as we have seen in the past few weeks and months, the ebb and flow of confidence has meant that market moves, either one way or the other, have not been sustained more than a few days. The Far East session today proved to be a little more active than the previous one as risk appetite took a small step backwards after the announcement that talks between the US authorities and CIT Group had ended with no agreement to support the US lender. This caused a little unease amongst traders and some profit taking ensued. EUR/USD slipped below 1.4100 and a macro fund was seen pushing it further towards 1.4070. We heard talk of a large barrier at 1.4200 with sizeable offers trying to protect it from 1.4150. USD/JPY and EUR/JPY also felt the force of macro selling after initially pushing a little higher on fixing demand. USD/CAD was notable for a sharp move up from 1.1150 to 1.1200 thanks to Asian real money buying. GBP/USD eased lower in line with EUR/USD but bids near 1.6380 underpinned the pair and sent it back to 1.6400. Offers are said to lie near the 1.6500 level.

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Today’s Key Issues (time in GMT):[/B]

13:30 USD Initial Jobless Claims Jul-11 554K vs. 565K
13:30 USD Continuing Claims Jul-04 6850K vs. 6883K
14:00 USD Net Long-term TIC Flows MAY $25.0B vs. $11.2B
14:00 USD Total Net TIC Flows MAY -$11.2B vs. -$53.2B
15:00 USD Philadelphia Fed. JUL -5 vs. -2.2
18:00 USD NAHB Housing Market Index JUL 16 vs. 15

[B]The Risk Today: [/B]

[B]EurUsd:[/B] EUR/USD has retreated mildly this morning after rising to 1.4133 and hits the 1.4050 resistance. The break above $1.41 was clearly spurred by the renewed risk appetite. The pair may rise up toward $1.42 as global risk appetite hurt the USD.

[B]GbpUsd:[/B] GBP/USD retraced after touching 1.6450 (61.8% FIBO retracement of 1.6742 to 1.5983) but after all, intraday bias remains on the upside as long as 1.63 minor support holds.

[B]UsdJpy:[/B] USD/JPY also retreated sharply after a rebound at 94.45 and intraday outlook is turned neutral for the moment.

[B]UsdChf:[/B] USDCHF recovered slightly from yesterday�s drop to 1.0720, daily bias remains bearish as long as 1.0830 support holds. Further downside (1.0660) could be seen following the Jobless claims this afternoon.

[B]Resistance and Support:

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