The Governor of the Bank of England, Mervin King, warned yesterday that a continued economic recovery was still unsure and that inflation is likely to remain above the 2% target for the next year.

King delivered a rather frank message to banks saying that their harsh treatment of corporate clients was leading to a “heartbreaking” situation in Britain’s small and medium sized business sector.

He said “It is a very tough job to build up these businesses and I do think that we need a pattern of finance that respects the need for these longer-term relationships.” Mervin added “They [small and medium-sized companies] may have had the same banking relationship for 60, 80 years and then suddenly out of the blue, comes a letter churned out by a computer which says that the terms of our relationship have changed.”

The bearish comments tempered Sterling in the forex spread trading markets slightly but that didn’t stop the Great British Pound hitting a fresh 5 month high against the USD following recent robust economic indicators and we are now trading at 1.5639 on cable.

The land registry on Wednesday said that house prices in the UK rose by 0.1% in June which brings the new average home price to £166,072 which is still 8.4% higher that a year ago. These values demonstrate a return to value last seen in the summer of 2006. Note that you can speculate on UK house prices with IG Index.

Over to the other side of the pond and the pessimistic tone of the latest Fed Beige Book, published on July 28, echoes the weakness evident in U.S. economic activity data.

Though economic activity improved on balance, districts reporting improvement indicated that the increases were “modest,” two districts reported no increase in activity and two others reported slowing activity. Retail sales were generally positive, though gains were modest in most districts.

Sales of necessities were stronger, while “big ticket items moved more slowly.” Manufacturing activity continued expanding, though several districts reported slowing or flattening, while services sector conditions improved. Residential real estate activity was “sluggish in most districts” after the homebuyer tax credit expiration, and commercial construction remained weak.

Some districts reported “soft or decreased” loan demand. Labour market conditions improved modestly, and on a positive note, there were “several reports of temporary hiring.”

The staggered road to recovery has been blamed for high unemployment and low consumer confidence. The latest figures will do nothing to reduce fears that US economy is slowing as opposed to recovering.

The latest headache for the Fed comes from the West coast as Governor Arnold Schwarzenegger announced yesterday a state of emergency over the state’s finances. This raises pressure on lawmakers to negotiate a state budget that is more than month overdue and will need to meet a $19 billion shortfall.

Article written by currenciesdirect.

None of the above information constitutes, nor should be construed as financial advice.

In a parliamentary written reply the Treasury has revealed there are 41 million fake £1 coins in British pockets, one in 36 of the total in circulation. The morning papers make much of the dangers implicit in this news, for example that the entire issue may need to be reminted. But are they missing the point? How cool would it be if it turned out that the deluge of dodgy dough was the result of the Bank of England outsourcing some of its quantitative easing at zero cost to the taxpayer.

Perhaps the governor will reveal more when he turns up at the Treasury Select Committee meeting this morning. The committee will certainly want to hear his views on the economy after the latest projections from the National Institute for Economic and Social Research (NIESR). The economic think tank assesses the risk of Britain’s economy falling back into recession next year at one in five. Prior to last month’s emergency budget that risk was one in seven. NIESR thinks living standards will not return to pre-crisis levels until 2015, roughly the same time horizon recently mentioned by the Federal Reserve in the States.

That unease is shared by investors but they are not acting on it at the moment because the solid economic evidence is telling a different story. Last Friday’s strong figures for gross domestic product (GDP) were anything but recessionary. The only figure since then, yesterday’s retail sales figure from the CBI, was also surprisingly strong with a net 33% of shopkeepers reporting higher sales in July. It was the strongest reading for three years and gave the pound a sense of purpose which it used to good effect during the rest of the day. Compared with yesterday morning’s opening levels the pound starts today stronger against everything.

The only other figures on Tuesday came from the United States. Case/Shiller’s index was slightly ahead of forecast with house prices rising by 4.6% in the year to May. The Richmond Fed’s manufacturing index was a point better than expected in July at 16 but seven points down from the previous month. Consumer confidence was four points lower at 50.4.

The only data that made any difference to exchange rates came from the antipodes. New Zealand business confidence unexpectedly fell from 40.2 to 27.9, temporarily sending the NZ dollar half a cent lower. The other surprise was Australian inflation.

Investors had been looking for consumer prices to have risen by something like 1% in the second quarter of the year. A figure around that level, they thought, would be enough to persuade the Reserve Bank of Australia to take interest rates another notch higher at next week’s policy meeting. There was therefore grave disappointment when the figure came in at 0.6%.

It was not fierce enough to guarantee a rate increase and so the forex markets undermined the Australian dollar, which fell a swift half cent against the US dollar and allowed sterling to jump by a cent and a half.

So much for the excitement; the rest of the day has got ‘uninspiring’ written all over it. The only ecostat is US durable goods orders; sometimes good for a laugh but too erratic to be useful as an indicator for the dollar. This evening the Federal Reserve publishes its Beige Book assessment of economic activity in the various Fed districts and tonight (in BST terms at least) the New Zealand Reserve Bank reveals its latest interest rate decision. Analysts are almost unanimous in expecting the RBNZ to raise its overnight cash rate from 2.75% to 3%.

The only scheduled event risk for sterling is Dr King’s appearance in front of the Treasury Committee, accompanied by a couple of his henchpeople from the Monetary Policy Committee. His recent track record on such occasions is one of talking down the pound, whether by accident or design.

Article written by moneycorp.

None of the above information constitutes, nor should be construed as financial advice.

The Federal Reserve is ready for another round of quantitative easing if necessary.

Sterling had been doing poorly until Friday morning, touching a low of $1.51 and only once managing to rise above Monday’s $1.53 starting point. On Friday its demeanour changed entirely. It leapt to $1.54 and held that position until the weekend. It was slightly higher at $1.5450 when London opened this morning. This will probably be reflected in the UK spreads markets.

Sterling’s fortunes changed in a most unexpected way on Friday when the Office for National Statistics published its first estimate of how Britain’s economy performed in the second quarter of the year. After growing by 0.3% in the first quarter, gross domestic product (GDP) expanded by 1.1% in Q2. It was a far better result than the 0.6% that the analysts had predicted. The figure has to go through two revisions in the next two months and it might end up lower but, for the time being at least, it is a good number and helpful to sterling.

The only inspiring aspect of the dollar’s performance was the way it held its own against the euro after six weeks of retreat. It received a little help from the economic statistics but not much. Existing (as opposed to new) home sales fell by ‘only’ 5.1% in June after a prediction they would be down by twice as much. The weekly figure for initial jobless claims was higher than expected; continuing claims were lower. Building permits for June were more than forecast, housing starts were fewer. The NAHB housing market index, a measure of builders’ activity fell from 17 to an even less impressive 14.

Nor did the dollar receive much help from its chief custodian, Federal Reserve Chairman Ben Bernanke. Giving his semi-annual testimony to congress he said ‘We remain prepared to take further policy actions as needed to foster a return to full utilization of our nation’s productive potential in a context of price stability.’

He was talking about the possibility of another round of quantitative easing. Like the MPC, Mr Bernanke went nowhere near promising such action but investors were worried enough by the idea that he was even contemplating the notion.

That strong GDP figure could give sterling a significant boost this week. The equivalent US number comes out on Friday and is unlikely to be anywhere close. Nevertheless, there is still technical resistance that could make upward progress difficult, in particular the May highs just above $1.55.

Buyers of the dollar should take advantage of current levels to increase the proportion of their hedge beyond 50%. Yes, there is the real prospect of sterling making further headway but there is also the possibility it could fall back.

Buying some more dollars at close to their lowest price in six months would not be an entirely ridiculous strategy.

For more information and expert guidance on the currency markets, call Moneycorp today on +44 (0)20 7589 3000. Alternatively go to www.moneycorp.com where you can open a free, no obligation Trading Facility.

If Fridays publication of the European bank stress tests were a Shakespearian play they would have been “Much Ado About Nothing” as they came out with a mere 7 banks out of the 91 banks tested failing, suggesting that the criteria were less than thorough.

The tests were limited to banks trading book losses, while assuming a four notch downgrade to securitised holdings, and a 20% drop in stock markets across Europe over the next two years. The evaluations took into account potential losses only on government bonds the banks physically trade, rather than those they intend holding to maturity, according to the Committee of European Banking Supervisors (CEBS). That means the tests are set to ignore the majority of banks’ holdings of sovereign debt as they moved the riskier elements of the debt out of their trading books so that it was left out of the scope of the tests.

Time will tell if this bit of creative accounting or sleight of hand is able to reassure the markets; however what it may do is split the European banking system into a two tier one with the strong banks in one tier, and the weaker ones left to wither on the vine, locked out of the funding markets and dependent on the ECB.

This may well put a near term cap on recent euro gains and see the single currency start to slide back towards 1.2850, however if it is able to get above its recent highs around 1.3020 it could well overspill towards 1.3125.

The pound could continue to be well supported despite the 0.1% fall in July’s monthly Hometrack figures for July. Friday’s UK preliminary Q2 GDP figures should remain the dominant factor after surprising to the upside and embarrassing the economist forecasts by coming in at a whopping 1.1% against an expectation of 0.6%, its highest level since Q1 2006.

This unexpected boost to growth makes the likelihood of further quantitative easing unlikely in the short term, and also adds weight to Monetary Policy Committee member Andrew Sentance’s argument that rates should start to rise sooner rather than later.

In the US June new home sales housing data out today could well continue in the same vein as previous data, however analysts appear to be slightly more optimistic, since the May figure shocked the market with a 32% fall, with analysts predicting a 5% rise for June.

EURUSD – The single currency has continued to struggle to make gains beyond 1.3000, slipping back on the back of the publication of the stress test results

It hasn’t however been able to break back below the 1.2840/50 area for the moment, but in the event it does it should find support at last week’s lows around 1.2730/40. While above 1.2840/50 the risk of a move towards the 38.2% retracement level of 1.3125 remains a possibility.

GBPUSD – Friday’s surprisingly good GDP numbers boosted the pound at the end of last week sending it through 1.5335, after a tricky couple of days last week and keep alive the possibility of a test towards the April highs around 1.5520, and even 1.5610 which is the 61.8% retracement level of the 1.6460/1.4230 down move.

Trend line support levels, around the 1.5180/90 area, from the June lows at 1.4350 needs to hold to maintain the momentum of the recent gains and have so far. A break below 1.5180/90 potentially opens up 1.4980,

EURGBP – the euro finally came unstuck on Friday against a resurgent pound as the support at 0.8400/10 gave way to a sharp move lower towards the 0.8320/30 level.

The 0.8400/10 again becomes a key resistance level again to further euro gains and would expect to see further declines through 0.8320/30 back towards 0.8240, while 0.8410 caps.

USDJPY – no change in sentiment here while below the 88.00/10 level. A re-test of 86.25 remains the preferred option. However the increase in risk appetite since Friday’s stress test results has seen the yen weaken, lessening the risk of a test towards last year’s yen lows at 84.80, via last week’s lows at 86.25. A break above 88.00/10 would re-target the 89.20/30 level while a break of 84.80 would look to target the 1995 lows below 80.00.

CFDs, FX and Spread Trading are leveraged products. They carry a high level of risk to your capital and it is possible to lose more than your initial investment. These products may not be suitable for all investors. Ensure you understand the risks involved and seek independent advice if and where necessary.

Trading News from Michael Hewson, Analyst, CMC Markets.

CMC Markets is authorised and regulated in the UK by the Financial Services Authority (FSA). FSA Registration no. 173730.

Note that CMC Markets provide an execution-only service. Any CMC Markets research and charting tools are indicative – they are provided for information purposes – they must not be relied upon as investment advice.

The above material should not be construed as a recommendation or offer to buy or offer to sell or solicitation of any offer to buy any security or other financial instrument by CMC Markets. The material is not a recommendation. You should seek independent advice as to a) your suitability to speculate in any related markets b) your ability to assume the associated risks c) the legal, tax and accounting characteristics and consequences of any transaction.

The euro received a nice boost yesterday on the back of some positive euro zone economic data which indicated that manufacturing growth exceeded expectations for July, while consumer confidence also improved, indicating a more positive growth outlook in Europe.

Contrast this with some disappointing US jobless data which came in worse than expected at 464k, against an expectation of 445k, pretty much bearing out Bernanke’s downbeat comments about employment on Wednesday, as well as existing home sales for June which sank by 5.1%.

The single currency was able to shake off the news that Hungary appears to be fed up with austerity, and wants to row back on a commitment to cut their budget deficit back to more sustainable levels by next year.

Today we will see if this boost can be sustained with the long awaited release of the bank stress test data for European banks after European markets have closed. The expectation is that the larger banks should pass today’s stress tests without too many problems, however it is how Europe plans to deal with the small banks that don’t pass that will be key.

There have already been a number of leaks about who has and hasn’t passed these tests this week that a few more leaks today probably won’t make much difference. As it is both Spain’s finance minister Salgado and France’s finance minister Lagarde are claiming that all their banks have passed the tests, which hardly seems credible given the problems in Spain with the regional cajas.

Here in the UK we have the small matter of the first release of Q2 GDP figures which after yesterdays better than expected retail sales figures for June, which came in at 0.7%, has boosted expectations of a better figure for GDP. The expectation is for a rise of 0.5%, from 0.3% last quarter. Anything below 0.5% could well provoke some sterling weakness given how positive recent economic data has been as expectations have been raised for a figure of 0.6% or higher.

EURUSD – positive economic data out of Europe saw the single currency bounce off its lows at 1.2735 yesterday and subsequently break back above the 1.2850 area to peak at 1.2930, some way short of this week’s highs above the 1.3000 level.

For the move to the 1.3125 level to happen we need to consolidate above the 1.2840/50 area and push through the highs this week at 1.3030/40.

Back below 1.2840/50 re-targets the week’s lows at 1.2730/40.

GBPUSD – the trend line support levels, around 1.5150/60, from the June lows at 1.4350 needs to hold to maintain the momentum of the recent gains and have so far. However, the momentum of each rally appears to be slowly fading casting doubt on the likelihood of a move back towards 1.5500. A break below 1.5150/60 potentially opens up 1.4980, while we would need the cable to hold above Wednesday’s highs at 1.5335 to stabilise and re-target last week’s highs.

EURGBP – the euro continues to defy gravity here breaking above the 0.8440 level to hit 0.8465 on an intraday basis.

The single currency now needs to hold above the 0.8430/40 area to re-target this weeks highs around the 0.8520/30 level and then push on towards the 0.8610 50% retracement level.

A close below 0.8400 is needed to re-target the 0.8320/30 level.

USDJPY – the dollar still appears to be pinging around in a broad range play here, between the range lows around 86.25 and the recent highs just above 87.50. However the likelihood remains of a test towards last year’s yen lows at 84.80 while the 88.00/10 resistance area caps the market despite concern about possible Bank of Japan intervention. A break of 84.80 would look to target the 1995 lows below 80.00.

CFDs, FX and Spread Trading are leveraged products. They carry a high level of risk to your capital and it is possible to lose more than your initial investment. These products may not be suitable for all investors. Ensure you understand the risks involved and seek independent advice if and where necessary.

Trading News from Michael Hewson, Analyst, CMC Markets.

CMC Markets is authorised and regulated in the UK by the Financial Services Authority (FSA). FSA Registration no. 173730.

Note that CMC Markets provide an execution-only service. Any CMC Markets research and charting tools are indicative – they are provided for information purposes – they must not be relied upon as investment advice.

The above material should not be construed as a recommendation or offer to buy or offer to sell or solicitation of any offer to buy any security or other financial instrument by CMC Markets. The material is not a recommendation. You should seek independent advice as to a) your suitability to speculate in any related markets b) your ability to assume the associated risks c) the legal, tax and accounting characteristics and consequences of any transaction.

Fed Chairman Ben Bernanke’s Humphrey Hawkins testimony served to put the skids under risk appetite, and sparked a sharp rise in the dollar late last night after he stated that the economic outlook remains “unusually uncertain”, though he was at pains to rule out the likelihood of a double-dip recession.

He also indicated that the Fed would take further policy actions if needed and repeated that rates would stay low for an “extended period”. Bernanke also cited concern over the housing market and unemployment which would weigh on recovery. The US dollar rose sharply on this and the single currency started to unwind some of its recent gains.

However, these euro declines were already underway in any case, after Portugal struggled to get away €1.25bn worth of one year bills. The bid to cover was 1.3 while the yield more than doubled from the previous issuance, highlighting the still fragile investor sentiment surrounding euro zone peripheral nation’s finances.

Concern about the rigorousness of the bank stress tests also weighed on sentiment after the chairman of the National Bank of Greece announced that his bank would pass the stress test without any problems, causing many to question how stressful they could be if Greek banks were able to pass them without any talk of write-downs or loan losses.

The pound also took a bit of a hit after the June Monetary Policy Committee minutes showed that members discussed increasing the £200bn worth of quantitative easing, on concerns that growth prospects had deteriorated a little.

In any event they voted 7-1 to leave rates unchanged, with Andrew Sentance unsurprisingly voting again for a rate hike on the basis that inflation looks set to remain high for some months.

UK data out today includes June retail sales, with expectations of a month on month rise of 0.6%, while in the US we should see whether Bernanke’s concerns over housing and unemployment remain well founded, with the release of weekly jobless claims, where the expectation is for a rise to 445k from last weeks 429k.

While in the housing market existing home sales for June are expected to show a decline of 9.9%.

EURUSD – yesterday’s failure to push back towards 1.3000 saw the single currency start to slide back, breaking below this weeks lows at 1.2840, and head lower overshooting 1.2750/60 area, bouncing from lows of 1.2735. Unless we get a recovery back above the 1.2850 area in the short term, then the risk is we get a deeper correction towards 1.2550, via 1.2680, which would delay any move to the 1.3125 level, which is the 38.2% retracement of the down move from the highs at 1.5145 to the 1.1880 lows.

GBPUSD – the pound continued to fall yesterday making a new low of 1.5125 as the dollar starts to regain some of its recent lost ground. The failure to regain and hold above 1.5300 is a concern for the overall scenario of a test towards 1.5610 which is the 61.8% retracement of the down move from the 2010 peaks at 1.6460 to the lows at 1.4230.

The trend line support levels now coming into play between 1.5110 and 1.5150, from the June lows at 1.4350 need to hold to maintain the momentum of the recent gains, other wise we could be looking at further losses towards 1.4980.

EURGBP – the failure to overcome 0.8520/30 saw an unwinding of some long euro positions and saw the single currency break back below the previous breakout level around the 0.8400/10 area, touching 0.8378 before rebounding. The failure of this area to hold even on an intraday basis is a concern, and makes it unlikely that we could see the move towards 0.8610, which would be a 50% retracement of the down move from the 0.9150 highs to the June lows at 0.8068. A move above 0.8440 is needed to stabilise, otherwise we could well be headed back towards the 0.8320/30 level.

USDJPY – the dollar still appears to be in a broad range play here, but the continued decline in US yields and increased risk aversion continues to push the yen higher from the 88.00 resistance towards the recent lows around 86.25, as the market looks for a break out of the recent range. However the likelihood remains of a test towards last year’s yen lows at 84.80 while the 88.00/10 resistance area caps the market despite concern about possible Bank of Japan intervention. A break of 84.80 would look to target the 1995 lows below 80.00.

CFDs, FX and Spread Trading are leveraged products. They carry a high level of risk to your capital and it is possible to lose more than your initial investment. These products may not be suitable for all investors. Ensure you understand the risks involved and seek independent advice if and where necessary.

Trading News from Michael Hewson, Analyst, CMC Markets.

CMC Markets is authorised and regulated in the UK by the Financial Services Authority (FSA). FSA Registration no. 173730.

Note that CMC Markets provide an execution-only service. Any CMC Markets research and charting tools are indicative – they are provided for information purposes – they must not be relied upon as investment advice.

The above material should not be construed as a recommendation or offer to buy or offer to sell or solicitation of any offer to buy any security or other financial instrument by CMC Markets. The material is not a recommendation. You should seek independent advice as to a) your suitability to speculate in any related markets b) your ability to assume the associated risks c) the legal, tax and accounting characteristics and consequences of any transaction.

The single currency was initially buoyed yesterday morning by successful Spanish and Greek T-Bill auctions, sending it to its highest level since early May.

However this initial buoyancy was soon derailed by sovereign debt worries outside the euro zone when Hungary upped the ante with its battle with the International Monetary Fund by cutting back its Treasury bill offering by 10bn forints to 35bn. This sent the euro sharply lower throughout the day.

The pound also continued its slide lower, after the latest UK public finance data came in at £14.5bn for the month of June, above consensus estimates, and re-focussed the markets attention on the level of the UK’s fiscal problems. The pound later recovered, specifically against the euro as it slipped back on sovereign debt concerns.

The pound will continue to be in the spotlight today with the release of the latest Bank of England Monetary Policy Committee minutes for June, which is expected to reveal that Andrew Sentance once again voted for a rise in rates, which probably won’t be a surprise as he voted for a rise in May. Any likelihood that other members of the committee are starting to share his concerns could see sterling receive a short term boost.

In the US Federal Reserve Chairman Ben Bernanke will be giving testimony where he will no doubt be quizzed on last weeks downward revisions of US growth forecasts, by the Federal Open Market Committee (FOMC), as well as a market rumour last night that the Fed was considering putting a stop to paying interest on bank reserves in an attempt to force them to lend.

Any indication that the Fed will start to consider any form of fresh stimulus in the coming months will weigh on the dollar and could well limit its upside in the short term.

EURUSD – the euro had another crack at the 1.3000 resistance area yesterday but was again rebuffed, though it did make a new high at 1.3030 before falling back.

That failure saw the single currency test back towards the support at around this weeks lows around 1.2870/80, spilling over slightly to 1.2840 before rebounding. A break of this support could target a deeper correction back towards the 1.2750/60 area, but while this level holds the next price objective in the medium term lies at 1.3125 which is the 38.2% retracement of the down move from the highs at 1.5145 to the 1.1880 lows. A move below 1.2750/60 targets 1.2550.

GBPUSD – the pound fell a bit further yesterday hitting a low of 1.5155 before rebounding. There are a number of support levels coming into play between 1.5070 and 1.5120 which need to hold to maintain the momentum of the recent gains.

We need to see a rally hold above 1.5300 to stabilise in the near term, to keep alive the scenario for a test towards 1.5610 which is the 61.8% retracement of the down move from the 2010 peaks at 1.6460 to the lows at 1.4230.

EURGBP – another test of the highs this week at 0.8520/30 was rebuffed and has seen a correction lower towards the previous breakout level around the 0.8400/10 area. This area needs to hold for further gains towards 0.8610, which would be a 50% retracement of the down move from the 0.9150 highs to the June lows at 0.8068. Any move below the 0.8400/10 re-targets the 0.8320/30 level.

USDJPY – the lack of follow through on the downside beyond the 86.30 lows suggests nervousness about overly aggressive dollar selling at these levels. The 88.00/10 resistance area remains key with respect to a move to last year’s yen lows at 84.80. Nervousness about possible Bank of Japan intervention will continue to hang over the market given the concerns about the strength of the yen on Japanese exporters, who become less competitive as a result. However dollar upside against the yen will remain limited while risk aversion and concern about fresh stimulus measures weighs. Bernanke’s comments on this today will be key given last weeks FOMC minutes.

Any rallies need to overcome the pivotal 88.00/10 area to stabilise and re-target 89.20, a break of which would re-target the 90.00 area.

CFDs, FX and Spread Trading are leveraged products. They carry a high level of risk to your capital and it is possible to lose more than your initial investment. These products may not be suitable for all investors. Ensure you understand the risks involved and seek independent advice if and where necessary.

Trading News from Michael Hewson, Analyst, CMC Markets.

CMC Markets is authorised and regulated in the UK by the Financial Services Authority (FSA). FSA Registration no. 173730.

Note that CMC Markets provide an execution-only service. Any CMC Markets research and charting tools are indicative – they are provided for information purposes – they must not be relied upon as investment advice.

The above material should not be construed as a recommendation or offer to buy or offer to sell or solicitation of any offer to buy any security or other financial instrument by CMC Markets. The material is not a recommendation. You should seek independent advice as to a) your suitability to speculate in any related markets b) your ability to assume the associated risks c) the legal, tax and accounting characteristics and consequences of any transaction.

Even though markets started in the black this morning, and were buoyed by mining stocks and successful Spanish and Greek T-Bill auctions, the day eventually gave way to steady declines on a range of differing factors.

The fallers in London were led by Cable and Wireless Worldwide Group after it warned that the government’s emergency budget would cause earnings growth to come in at the lower end of estimates. This has had a comparative drag on Serco and Capita who also rely on public sector contracts while BT is also lower.

Sovereign debt worries outside the euro zone also weighed after Hungary upped the ante with its battle with the International Monetary Fund by cutting back its Treasury bill offering by 10bn forints to 35bn.

This in turn pulled the banking sector off its highs for the day and these moves lower weren’t helped by Goldman’s earnings numbers.

BP has recovered its losses for the day after reporting that the leakage reported on the sea floor is unrelated to its new cap on the Macondo well.

British Airways shares are lower after cabin crew voted against the airline’s latest “final” pay offer by two to one, however just over 3,400 voted against the deal with almost 1,700 in favour, but less than half the 11,000 eligible to vote did so, suggesting fatigue in the long-running dispute.

As the markets headed into the afternoon session sentiment was hit further by Goldman Sachs revenues undershooting revenue targets, despite profits beating expectations. Investors remain concerned about how future revenue growth will be generated with the onset of future regulation as well as more testing economic conditions.

Sterling was hit by today’s public finance data which came in at £14.5bn for the month of June, above consensus estimates of £13bn, has re-focussed the markets attention on the level of the UK’s fiscal problems and prompted some sterling profit-taking across the board.

US housing starts also declined to their worst levels since June 2009, down 5% and much worse than analyst expectations, while May’s figures were revised down even further to -14.9% from -10%, though building permits did provide a sliver of optimism rising 2.1% against an expectation of a rise on 0.2%.

US markets predictably opened lower after the disappointing revenues data from Goldman Sachs and the disappointing housing data. The US market will be hoping that Apple’s profits, due after the bell, measure up, and more importantly that the launch of the iPad and the iPhone 4 has boosted revenues above market expectations. Apple is expecting earnings in the region $3.15c a share, with revenues of around $13.5bn.

CFDs, FX and Spread Trading are leveraged products. They carry a high level of risk to your capital and it is possible to lose more than your initial investment. These products may not be suitable for all investors. Ensure you understand the risks involved and seek independent advice if and where necessary.

Trading News from Michael Hewson, Analyst, CMC Markets.

CMC Markets is authorised and regulated in the UK by the Financial Services Authority (FSA). FSA Registration no. 173730.

Note that CMC Markets provide an execution-only service. Any CMC Markets research and charting tools are indicative – they are provided for information purposes – they must not be relied upon as investment advice.

The above material should not be construed as a recommendation or offer to buy or offer to sell or solicitation of any offer to buy any security or other financial instrument by CMC Markets. The material is not a recommendation. You should seek independent advice as to a) your suitability to speculate in any related markets b) your ability to assume the associated risks c) the legal, tax and accounting characteristics and consequences of any transaction.

After a slow start this morning, opening lower on the back of falls in Asia, markets have recovered some of their poise, shrugging off Moody’s downgrade of Ireland as well as the problems with respect to Hungary and the International Monetary Fund.

With so little data out between now and tomorrow the focus has been on M&A with International Power in fresh talks with GDF Suez about a partnership, while earnings season continues in the US.

This week also sees Fed Chairman Bernanke’s testimony to Congress which will be his first public utterances since the Federal Reserve Bank’s downgrade of US growth forecasts last week.

Optimism about the results of the forthcoming European Bank stress tests on Friday is also affecting sentiment, with banks higher across the board, while firmer commodity prices has also given the mining sector a boost.

On the flip side BP has slid back on fears that declining pressure on its newly installed cap on the Macondo well may indicate that there is a leak elsewhere on the ocean floor.

The pound has slid back, especially against the resurgent euro, after the RightMove UK housing data showed that house prices may well have peaked in the short term after July data showed a decrease in prices of 0.6%. This slide could well prove temporary if UK data out later this week proves to be as positive as hoped. Bank of England minutes out on Wednesday will be closely scrutinised to see if any other members of the MPC join Andrew Sentance in calling for some fiscal tightening later this year.

The US dollar has continued to remain weak on the back of continued concerns about the US economy and this was further reinforced when in data out today the US NAHB housing market index for July fell 3 points to 14, two points below expectations, and highlighting the precarious state of the US housing market since the expiry of the homebuyer’s tax credit.

US markets opened about 40 points higher on optimism about forthcoming earnings with IBM and Texas Instruments due to report after the bell, with IBM expected to show earnings of $2.58c a share and Texas expected to show $0.61c a share, however the housing index data saw the Dow pare some of those gains soon after.

CFDs, FX and Spread Trading are leveraged products. They carry a high level of risk to your capital and it is possible to lose more than your initial investment. These products may not be suitable for all investors. Ensure you understand the risks involved and seek independent advice if and where necessary.

Trading News from Michael Hewson, Analyst, CMC Markets.

CMC Markets is authorised and regulated in the UK by the Financial Services Authority (FSA). FSA Registration no. 173730.

Note that CMC Markets provide an execution-only service. Any CMC Markets research and charting tools are indicative – they are provided for information purposes – they must not be relied upon as investment advice.

The above material should not be construed as a recommendation or offer to buy or offer to sell or solicitation of any offer to buy any security or other financial instrument by CMC Markets. The material is not a recommendation. You should seek independent advice as to a) your suitability to speculate in any related markets b) your ability to assume the associated risks c) the legal, tax and accounting characteristics and consequences of any transaction.

After Wednesday’s downbeat assessment from the FOMC with respect to the US economy, some positive economic data would have been the perfect antidote; however it was not to be, as the dollar suffered a double whammy of bad news as both the Empire manufacturing and Philadelphia Fed indexes for July fell by much more than market expectations.

The Empire manufacturing index plunged to 5.08 from an expectation of 18.5, while the Philadelphia Fed business index fell to a reading of 5 from an expectation of 10. Monthly producer prices also fell by more than expected, a fall of -0.5% against an expectation of -0.1% which sent US yields lower, and undermined both equities and the US dollar.

Today’s release of US June CPI is unlikely to offer the dollar much respite, as it looks set for its sixth successive weekly decline against a basket of currencies, its worst losing sequence since 2005. The markets are expecting a CPI month on month figure of 0%, and a year on year figure of 1.2%.

The real risk now has to be the possibility of a further stimulus package before the end of the year if the economic data continues to deteriorate at the current rate, which in turn raises the prospect of a double dip recession.

The euro has continued to gain on the back of declining US yields and a successful 15 year Spanish bond auction, which coming as it has on the back of successful auctions from Greece, Italy and Portugal this week has contrived to boost risk appetite with respect to the southern European economies.

EURUSD – the successful break and close above 1.2750 now opens up the possibility of a test towards the inverse head and shoulders price target objective around 1.3200. Any dips should now find support around the 1.2750/60 break out area while the next target in the medium term lies at 1.3125 which is the 38.2% retracement of the down move from the highs at 1.5145 to the 1.1880 lows.

GBPUSD – yesterday’s dollar weakness has seen the pound smash through a number of different chart points as the market now looks to test the April highs around 1.5520. The break and close above the 50% level at 1.5345 now targets these highs as well as a test toward 1.5610 which is the 61.8% retracement of the down move from the 2010 peaks at 1.6460 to the lows at 1.4230. Expect the pound to find support around 1.5340 and below that at 1.5230/40, last weeks highs.

EURGBP – the euro continues to struggle anywhere near the 0.8400 level and while this resistance holds the bearish scenario remains intact. A break and close above 0.8400 could well target 0.8520. The euro should continue to find support around the 0.8320/30 area, a break of which would target 0.8250.

USDJPY – the fall in dollar yields yesterday saw the support around the 88.00 level finally give way and now the market has tested the June lows at 86.95. A break below these lows here opens up the risk of a move to last year’s yen lows at 84.80, a break of which would open up levels last seen in 1995.

Any rallies would need to overcome the pivotal 88.00/10 area to stabilise and re-target 89.20, a break of which would re-target the 90.00 area.

CFDs, FX and Spread Trading are leveraged products. They carry a high level of risk to your capital and it is possible to lose more than your initial investment. These products may not be suitable for all investors. Ensure you understand the risks involved and seek independent advice if and where necessary.

Trading News from Michael Hewson, Analyst, CMC Markets.

CMC Markets is authorised and regulated in the UK by the Financial Services Authority (FSA). FSA Registration no. 173730.

Note that CMC Markets provide an execution-only service. Any CMC Markets research and charting tools are indicative – they are provided for information purposes – they must not be relied upon as investment advice.

The above material should not be construed as a recommendation or offer to buy or offer to sell or solicitation of any offer to buy any security or other financial instrument by CMC Markets. The material is not a recommendation. You should seek independent advice as to a) your suitability to speculate in any related markets b) your ability to assume the associated risks c) the legal, tax and accounting characteristics and consequences of any transaction.