Amongst the major currencies the pound has been remarkably resilient in holding its gains against the dollar, consolidating around the 1.6500 level for the past few days before breaking higher in tonight’s overnight trade. However, there are several good reasons to be suspicious of this rally as we move into the dog days of summer.

Cable’s strength tonight is due to EUR/GBP  flows related to end of the month fixing. With the cross having fallen to within a few pips of the key 8500 level, many speculative and real money accounts have been stopped out of their positions fueling cable’s relative outperformance. However, looking at the pair from a longer term perspective suggests that the economic data does not support such wild optimism. Although cable has been helped by the better performance of the UK housing sector which has clearly stabilized as evidenced by nearly all the surveys, it is unlikely that house prices will once again begin to climb at a pace anywhere near the one seen during the 2005-2007 boom and therefore will be of limited benefit to the currency going forward.

Furthermore other data points on the UK calendar are beginning to show a slowdown in the rate of improvement. UK consumer confidence after improving markedly from it s-37 reading in January has stalled at the -25 level for the past several months. Industrial and Manufacturing output have all dipped into negative territory once again while PMI readings have also seen no month to month improvement in activity. In short, the UK economy appears to have halted its massive rate of contraction, but so far shows no signs of any organic growth.

Source: FX360.com

The Shanghai stock market plunged more than -7% in late Asian afternoon trade before rebounding somewhat on rumors that two of China’s largest banks may have curtailed their lending for the rest of the year. The news sparked a fresh round of risk aversion in capital markets across the world with high beta currencies coming under heavy selling pressure at the start of European trade.

If true, the news would suggest that Chinese officials are becoming alarmed about the fast pace appreciation in financial assets fearing that the massive stimulus enacted last year is creating a speculative bubble in the country’s economy. The rumors come on the heels of today’s 90% post IPO gain by China State Construction Engineering company whose shares rose as high as 7.96 yuan from their 4.18 offer price. Critics fear that such buying frenzy which is driven primarily by retail demand is emblematic of too much liquidity in the system. The other four companies that went public in China this year have all fallen below their first day opening prices as market sentiment cooled.

Source: FX360.com

Mad Money host Jim Cramer shares advice on the markets:)

Risk sentiment took a bit of a knock last night as US consumer confidence disappointed for the second straight month, pouring some cold water on the imminent recovery theory. Consumer confidence came in at 46.6 vs. 49.0 expected with a drag in the assessments of both present and future situations while the labour market remained a steady worry. The negative sentiment was partly offset by a strong showing in the US Case-Shiller house price index which indicated a slower pace of decline and improving prices. This would appear to confirm the more recent positive sentiments from the housing sector.

That said, the greenback rebounded from support levels on the USD index and we saw a quick retreat by the major currencies. EUR probably saw the most action, having tripped options related deals above 1.43, we were down at 1.4130 within a short space of time. AUD gave back some of the stellar gains made to 9-month highs following RBA’s Stevens’ comments. Wall St was mixed but generally in the red for most of the session.

Source: Saxo Bank Strategy and FXstreet.com

Today at Trading for a living:

- VIDEO: Stop Trading, Listen to Cramer!

- Plunge In Shanghai Stocks Spooks RIsk Currencies

Hawkish comments by RBA Governor Glenn Stevens sparked yet another rally in risk FX pushing the Australian dollar to a new 2009 year high as risk appetite ran wild at the start of early European trade this morning. Governor Stevens noted that Australia’s downturn may not be “one of the more serious” of the post-World War II era adding that, “we can much more easily imagine upside risks to the outlook than six months ago.”

Markets interpreted Mr. Steven’s comments as an indication that the RBA may be ready to consider reversing its accommodative monetary policy that has brought rates down to 3% - still the highest in industrialized world. As a result, the Aussie catapulted more than 100 points to a high of 8320 while cable was squeezed higher to 1.6550 and euro rose to 1.4300 before hitting a wall of sell orders.

Source: FX360.com

GBP/USD

Cable staying within the defined large trading range. Resistance is at 1.6565/85. Sellers will be here at these high revels looking to drive this lower back to 1.6380.

Sellers will put stops in at above 1.6625. If this resistance breaks, buyers will come in and look for this to trade higher to 1.6665. Buyers will cover. They will take on the sellers here as well, as if this does break out of this range buyers are looking at 1.6830 to entice.

1.6565/85 holding keeps the market within defined range and sees sellers take this back to 1.6380. Here they will cover. Sellers will only re-sell below 1.6320 for 1.6240/20.

EUR/USD

Eur/Usd hit 1.4298 yesterday which was near enough to the 1.4300 resistance. Buyers are going to be looking once more to cover in this region. Now 1.4300 holding leaves the market with a short term double top pattern. This should drive the market lower. However above 1.4335/40 all bets are off.

Now you do have resistance, good resistance in the 1.4335/40 region from previous highs, and this is obviously going to be a sticking point for buyers. Sellers are likely to come in at these higher levels and try and hold the buyers at bay. This should work initially, as the market will then have a topping pattern. However if buyers can crack above 1.4365 you would find sellers scattering, leaving buyers to hoist the market higher with 1.4440 then the next objective.

Now if 1.4300 holds it will come lower to support at 1.4205. If sellers break this support look once more for this to come lower to 1.4155/35. Sellers will cover to here. Only below 1.4110 would sellers once more be interested.

Source: FXstreet and Charmer Charts.com

Today at Trading for a living:

- VIDEO: RBA: Australia Economic Risks Now More Balanced

- Risk Runs Wild As Stevens Turns Hawkish

- U.S. Dollar: Is The Recession really over?

If there is one word to describe the price action in the currency markets today, it would be hesitancy. Although the U.S. dollar traded lower against most of the major currencies, its losses are nominal. After selling off to near year to date lows against many of the major currencies, short dollar positions have hit extreme levels. Without overwhelmingly positive news to lift risk appetite, the hesitancy in the forex markets reflects the market’s skepticism.

Newsweek Declares that Recession is Ove r

On the cover of Newsweek magazine this week are the words “The Recession is Over.” Recent economic data has shown that the pace of contraction in the U.S. economy is slowing but can the recession really be behind us? According to Newsweek, all signs point to the possibility of GDP growth turning positive in the third quarter, which could mean that technically the recession is over. However it won’t feel like that for most Americans and “you might wait a while before adding Judy Garland’s rendition of “Happy Days Are Here Again” to your iPod. GDP growth alone can’t feed a family, or pay a mortgage. Cursed with a high national debt load and blessed with a dynamic, growing workforce, the U.S. economy needs annual growth of at least 1.5 percent just to feel like we’re standing still.” On Friday, second quarter GDP numbers will be released. If the pace of contraction slows as much as the market expects, we could be one step closer to the recession being over. Economists predict that growth contracted by 1.5 percent in Q2, compared to 5.5 percent in Q1. The price action in the currency markets today suggest that forex traders are also skeptical about the outlook for the U.S. economy and we may have to wait until Friday’s reports to get some real action in the U.S. dollar.

Source: FX360.com

UK Retail sales printed better than expected at 1.2% versus 0.3% as warm weather and discounts helped to fuel consumer demand. Additionally BBA mortgages rose to 35.2K from 31.9K the period prior. This was the fourth consecutive rise in the BBA number as signs of a bottom in the UK housing market are becoming evident.

Although the latest UK macro economic data clearly suggests that the economy has stabilized it is still too early to determine whether it is in full recovery mode. The Retail sales component is notoriously volatile and the currency market will need to see several months of positive growth in order to be reassured that consumer demand has been restored. Nevertheless, today’s news provides yet another piece of supporting evidence for the bullish argument that the worst of the global contraction is over and the recovery phase is well under way.

Source: FX360.com

Chek out the new brand “Forex Tools section” on FXstreet:

Excellent work. Tools that you could use for improving your trading. Have a look:

Margin Calculator (http://www.fxstreet.com/forex-tools/margin-
calculator/) to compute the margin you need to hold open positions.
Carry Trade Calculator (http://www.fxstreet.com/forex-tools/carry-
trade-calculator/) to buy and sell with the highest interest rate.
This tool helps you to capture the price appreciation or depreciation
in a currency while also profiting from the interest differential.
Profit Calculator (http://www.fxstreet.com/forex-tools/profit-
calculator/) to test different trading scenarios, enabling you to
project the amount of profit or loss that a potential trade may be
worth.
Spread Cost Calculator (http://www.fxstreet.com/forex-tools/spread-
cost-calculator/) to Get a better spread management. This tool allow
any trader to quantify the spread impact depending on your trading
style.

And these are just a few. Up to 13 tools that you could use for your
trading.