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The Euro has started to regain its footing after being weighed by weak earnings from Carrefour SA-Europe's biggest retailer- which reported a consecutive drop in quarterly sales. Consumer consumption remains weak in the region which could limit domestic growth going forward.

Talking Points
• Japanese Yen: Range Bound Near 93.70
• Pound: Heavy On Bean Comments
• Euro: Supported By Returning Risk Appetite
• US Dollar: Initial Jobless Claims Philly Fed on Tap

Euro Regains Footing As Focus Turns To Citigroup and GE Earnings, Pound Heavy On Bean Comments

The Euro has started to regain its footing after being weighed by weak earnings from Carrefour SA-Europe's biggest retailer- which reported a consecutive drop in quarterly sales. Consumer consumption remains weak in the region which could limit domestic growth going forward. Indeed, we saw in the May Euro-Zone trade balance report that imports fell for a fourth month and outpaced declining exports to result in a trade surplus of 1.9 billion. Meanwhile, construction output for the region fell 2.0% in May after consecutive monthly gains which could be a sign that the impact from stimulus efforts are waning.

Exports for the Euro-Zone fell for a third straight month despite the region posting a consecutive trade surplus as global demand has started to ease. This could weigh in the growth potential for export driven economies like Germany and limit the scope of the region's recovery. Additionally, the 2.1% decline in building construction was the lowest since December which could be a sign that credit conditions remain challenging. The ECB has initiated its cover bond purchase program but spent only 100 million euros in the first week of the 60 billion euro program. Expectations are that the total program will be completed by mid-2010 which will limit its impact over the near-term.

The Pound dropped on comments from BoE Deputy Governor Charles Bean that the U.K. economy will take time to recover. Sterling was already trading heavy on waning risk appetite but has started to consolidate ahead of the next round of earnings reports. If range bound price action continues then we could see GBP/USD look to test the 50-Day SMA at 1.6130

The dollar found support through Asian trading on concerns over the possible CIT bankruptcy and weak corporate earnings from European names. However, we have started to see consolidation as European equity markets turned positive which could be a sign that risk appetite is returning. Corporate earnings continue to dominate price action and Citigroup and GE will take center stage today. If they can continue the theme of improving earnings for the financial sector then we could see a return of risk appetite and dollar weakness. The U.S. housing start report could also impact sentiment if we see a significant improvement in new construction. Expectations are for a reading of 530K following last month's 532K which could make it non-eventful, but a surprise to either side could spark volatility.

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To discuss this report contact John Rivera, Currency Analyst: jrivera@fxcm.com