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

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.

Since the beginning of the week, the Dow  Jones Industrial Average has climbed more than 450 points and in that same time, we have seen the U.S. dollar sell off against every major currency except for the Japanese Yen. With earnings season is in full swing, currencies are taking all of their cues from equities. Ten out of the thirteen S&P 500 companies that have reported have surprised to the upside, relieving last week’s fears that the recovery is receding.

The latest moves in the currency market broke the downtrend in pairs such as the EUR/USD,  USD/JPY  and AUD/USD. As long as Chinese growth does not disappoint and earnings continue to beat expectations, risk appetite is here to stay. However the currency market has proved to be very fickle and therefore this rally is fragile. The U.S. economy is still facing a jobless recovery and if there are any disappointments, the turn could be sharp.

Source: FX360.com

As expected the Bank of England kept its interest rate at record low of 50 basis points and announced that it will continue with its 125 billion pound asset purchase program designed to ease monetary and credit conditions in the UK economy. In its post announcement release the UK central bank noted that, “The Committee expects that the announced program will take another month to complete. The Committee will review the scale of the program again at its August meeting, alongside its latest inflation projections.”
Pound spiked in the aftermath of the release rising to 1.6269 while gilts declined as traders that speculated earlier that BOE would commit another 25 Billion to the program quickly covered their shorts. The fact that the MPC decided to remain stationary at 125 Billion GBP suggests that UK monetary officials believe that economic conditions have stabilized and for the time being require no further financial triage.

Source: FX360.com