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A Taste For Risk Appetite

The USD continued to trend lower against the major currencies on Monday and finished the day at the weakest parts of its range versus the big three – the EUR, GBP, and JPY. The greenback has been giving back ground to many of the international currencies the past few weeks including the AUD and the question that now must be asked is if this is happening on the heels of weak U.S. data or a natural pull back following strong gains. New Home Sales figures were released yesterday and they provided a nice surprise coming in with a result of 330K compared to the estimate of 317K. However, the previous month’s total was revised downward to 267K, which may have dampened sentiment. Today housing sector news will continue with the S&P/CS Composite 20 HPI and the forecast is anticipating a gain of 3.9%. Also the CB Consumer Confidence reading is on schedule and expecting a mark of 51.3.

Wall Street continued its quarterly earnings parade yesterday and Fed Ex announced a promising outcome and a better outlook. But the broad equity markets continue to experience rather choppy terrain and the volumes within the markets indicate a bit of apprehension, besides typical summer doldrums. Tomorrow the Core Durable Goods statistics will be brought forth and on Friday the Advance GDP numbers loom. Investors who have been tentative  regarding the markets still have plenty of ammunition to point to when making their ‘bear’ sentiment known, but traders have been able to take advantage of the currencies the past few weeks if they have had enough risk appetite. While questions pervade about the overall health of the American economy, the European debt situation, and government polices (interventions), essentially traders who have had the stomach to ride the momentum of ranges have had the opportunity to experience some sunshine.

While the debate rages on about the creditability of Banking Stress Test Results from Europe, the EUR continues to pick up steam and finds itself within ‘valuations’ not seen for a few moons. There was no major data from the E.U. yesterday and today the GfK German Consumer Climate reading is the only noteworthy release on the calendar. Investors continue to argue over the merits of the Stress Test, with naysayers pointing out that the test did not even consider the possibility of a Sovereign Debt default. On the opposing side, others are saying that the test shows that the E.U. has a legitimate plan for moving forward and are showing their seriousness in issuing the report. The EUR has had three solid weeks of rather good results as it has gained lost ground versus the USD. No matter the reason for the sudden reversal in its fortune, the EUR has shown enough stability to merit attention and it appears that it has enough backers who believe that it may have some additional upside. Europe still has many hurdles facing it regarding its economic outlook, but traders who have been willing to step into short term positions and stay focused have found a positive run for the Single Currency.

The Sterling continued to gain against the USD on Monday and its summer rally has not shown signs of letting up quite yet. The U.K. will release its CBI Realized Sales reading today and a mark of 2 is the expected result. This would be better than the previous outcome of minus -5. The data from the U.K. has been mixed at best the past few months, but on Friday the GDP report added fire power to investors carrying bull sentiment. Today’s report will play its part in either continuing the momentum or dampening it just a bit. Tomorrow BoE Governor Mervyn King will testify on the stability of the economy with other members of the MPC. The GBP has shown significant stability the past month on a flurry of proactive austerity moves by the government. The Sterling may continue to find backers today.

The JPY continues to trade in the stronger parts of it range versus the USD. While the Asian bourses did perform better yesterday, cautious sentiment remains a strong undercurrent. Gold is within a tight consolidation and the question is when this will end and if it will occur with volatility.  Even as some risk appetite has emerged within the broad markets, the price of Gold has not lost a substantial amount of its value and continues to linger within striking distance of it highs should volatility break out once again in the international financial sectors.

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