Overview The GBP was the best performing currency on Monday – gaining 1.30% against the USD, CHF and JPY while ending the day 0.30% higher against the EUR. The GBP was boosted by a report saying Goldman predicted the UK economy would grow faster than the US, EZ and Japanese economies and growing expectations that more MPC members would consider joining Sentence in pushing for a BOE rate hike when they meet on Thursday. Stock markets higher across the board yesterday with Wall Street up large (DJIA +1.99%, NASDAQ +1.8%, S&P +2.2%).We are seeing European markets down at the open this morning as investors take a breather after yesterdays gain’s sparked by robust results in the banking sector. Currencies EURUSD: EUR/USD: Sales Out Of London Met Reasonable 1.3145-50 Bids – Talk in the market of EUR sales out of London with early order interest from clearer names. However, the dip from 1.3160-65 to 1.3145 met with good bids out of Europe and Asia and the EUR is now back above 1.3170. Plenty of chatter Asian central bank demand in the mid-1.3150″s and also of small stops under 1.3125 and larger orders under 1.3075. GBPUSD GBP/USD: Extends North to New Six-Month High, FOMC In Focus- Fix-related buying of the pound is being attributed as a factor in cable’s early Europe ascent to a new six-month high of 1.5933. Buy stops were also tripped on the break through the peak of today’s 1.5862-1.5901 Asian session range. A fundamental source of support for the rise is speculation about the FOMC meeting next Tuesday (Aug 10). “Fed Mulls Symbolic Shift” and “Officials to Consider Putting More Money Into Bond Market as Recovery Wavers” are the headline and sub-headline of a WSJ article from Jon Hilsenrath. “Federal Reserve to start the deflation fight next week, expert claims” is the headline of a Daily Telegraph article re: a prediction from Paul Sheard. A looming GBP/USD test of the psychologically important 1.6000 level is looking more and more inevitable. 1.5968, a 61.8% retracement point of the fall from 1.7055 (5 Aug 2009 high) to 1.4228 (May 20 low) is a pre-figure resistance level. Bull targets beyond 1.6000 include 1.6070 (Feb 3 high), 1.6180 (Jan 29 top), 1.6277 (Jan 28 peak) and 1.6459 (Jan 19 high). Yesterday’s ascent from 1.5695 to a high of 1.5907 was aided by strong UK manufacturing sector forecasts/numbers from the EEF/BDO, CBI and CIPS, and a forecast from Goldman Sachs that UK economic growth will outpace that of the US, EZ and Japan next year. USDJPY USD/JPY, EUR/JPY: Soggy Into Tokyo Close Despite Stock Rebound – Both USD/JPY and EUR/JPY are trading closer to session lows than highs despite the late rebound in the Nikkei. From an early afternoon low of 9632.86, the index has rebounded to 9680.12 at writing and is up 109.81 points or 1.15% on the day. It is still below the high early of 9750.88 but now well off its low. USD/JPY and EUR/JPY currently trades 86.38/41 and 113.66/69, respectively. The former fell off from an early high of 86.65 to 86.28 and the latter from 114.14 to 113.58. Lack of interest could be partly to blame what with the market focusing more on AUD post-RBA. EUR’s upside also looks to be capped now with sovereign names seen offering EUR/USD ahead of presumed option barriers at 1.3200. USD, for its part, remains on the back foot despite the lack of fresh weakness against the likes of EUR and GBP Commodities Oil Crude rose as much as 28 cents to $81.62, 15 cents short of Monday’s three-month intraday high, and was up 1 cent at $81.35 a barrel by 12:37 am. The front-month U.S. contract rose 3 percent on Monday to surpass $80 for the first time since early May. Prices had traded between $70 and $80 for almost two months. The oil market’s attention will turn to U.S. inventories later on Tuesday, when the American Petroleum Institute will publish industry stockpile figures. Government statistics on supply and demand will follow from the U.S. Energy Information Administration on Wednesday. U.S. crude oil inventories probably fell last week as imports slipped and the effect of Gulf of Mexico production was interrupted briefly by Tropical Storm Bonnie, a Reuters preliminary survey of analysts on Monday showed. Averaging 9 analyst views, crude inventories were expected to have fallen 1 million barrels in the week to July 30, Monday’s survey showed. Gold Gold held steady near a one-week high on Tuesday as a weak U.S. dollar spurred early buying from investors, while jewelers were also expected to snap up the metal before festive seasons in India and Indonesia. But trading was thin ahead of a trail of U.S. data such as June personal income, June factory orders and July auto sales, offering clues on the health of the economy. Platinum and palladium failed to sustain early gains. Spot gold was unchanged at $1,181.25 by 1:29 a.m. ET, after rising to a 1-week high of around $1,190 on Monday, partly driven by physical buying in Asia. The precious metal was well below a lifetime high of $1,264.90 struck in June. “I would look at the upside for gold being capped,” said Ong Yi Ling, an investment analyst at Phillip Futures in Singapore, who pegged key support at a three-month low of around $1,150. “And hence, we might actually see gold edging down a little bit if the economic data come in better than anticipated, like the consumer spending and personal income figures.” Markets US Markets U.S. stocks closed at their highest level in 10 weeks on Monday and the S&P 500 pierced key technical levels as a weaker U.S. dollar lifted the energy and raw materials sectors. Strong results in Europe from BNP Paribas and HSBC Plc added to the upbeat tone and lifted U.S. bank stocks. JPMorgan Chase & Co rose 3.4 percent to $41.64 and the KBW Bank index .BKX gained 3.2 percent. The falling greenback set off a 3 percent jump in crude prices , which, coupled with BP’s attempt to permanently cap its Macondo well in the Gulf of Mexico, sent energy shares soaring. Macondo-linked companies rallied, with Transocean Ltd (RIGN.VX)(RIG.N) up 9.6 percent to $50.68. The Philadelphia exchange oil services sector index .OSX climbed 4.5 percent. “Oil service and oil companies got overdone on the downside because of the problem in the Gulf, and now we are having a natural reaction back up,” said Carl Birkelbach, chief executive of Birkelbach Investment Securities in Chicago. Crude futures settled above $81 per barrel for the first time since early May. The S&P energy sector jumped 3.6 percent. Raw materials also rose and the Reuters/Jefferies CRB commodity index .CRB hit a three-month high. Dow component and aluminum company Alcoa Inc advanced 4.8 percent to $11.71. The 90-day correlation between the CRB and S&P 500 is currently .85, up dramatically from the 0.33 range in early May. Many investors reason rising raw material prices bodes well for global demand prospects. The Dow Jones industrial average .DJI gained 208.44 points, or 1.99 percent, to 10,674.38. The Standard & Poor’s 500 Index .SPX advanced 24.26 points, or 2.20 percent, to 1,125.86. The Nasdaq Composite Index .IXIC rose 40.66 points, or 1.80 percent, to 2,295.36. The S&P 500 closed the session above its 200-day moving average and the 1,121 level, the midpoint of the slide from its historic high reached in October 2007 and the 12-year low hit in March 2009, which has been viewed as a key resistance level. European Markets We are expecting to see the leading European benchmark indexes edging lower on Tuesday, as investors take a breather after Monday’s strong rally sparked by robust results in the banking sector. The FTSEEurofirst 300 index of top European shares gained 2.6 percent on Monday, hitting a three-month closing high and ending above its 200-day simple moving average, boosted by strong results from HSBC and BNP Paribas, as well as by better-than-expected U.S. manufacturing data. Here are some of the stocks on the move: *HSBC Holdings Plc was up 2 percent after Europe’s largest bank on Monday said that first-half profit more than doubled from a year earlier to $11.1 billion as bad debts fell sharply, beating a consensus forecast from analysts for a $9.1 billion profit. Euro Zone June PPI is unveiled at 09:00 GMT, forecast at +0.4% on the month and +3.1% on an annualized basis Asian Markets: Asian shares rose to their highest levels in nearly three months on Tuesday, after Wall Street surged and the euro reached a three-month peak on Monday on the back of data showing the U.S. manufacturing sector grew in July for a 12th consecutive month, topping expectations. A weaker dollar renders oil imports cheaper for non U.S. currency holders. Nikkei Closes Day Up 123.70 Points Or 1.29% At 9694.01. – Following a risk-on day overnight with Wall Street up large (DJIA +1.99%, NASDAQ +1.8%, S&P +2.2%), the Nikkei gapped up to open its session at 9716.57. Climbing to 9750.88 early, it fell off thereafter to 9632.86 early in the afternoon before bouncing into the session close. Other Asian bourses were mostly higher too though to more modest extents. The Shanghai Composite was an exception, down marginally.

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