Following the trend that developed in the Asian afternoon EUR/USD pushed higher into the London open before finding sellers ahead of the 1.4270 area, still within its established range. Further gains in stock markets both in Asia and Europe were the chief driver behind the improvement in risk appetite. On the back of the move in stocks, the yen is weaker across the board, AUD and the CAD are edging towards their June highs vs the USD, and even cable is pushing higher despite a report in The Times that UK banks could face more losses as a result of exposure to commercial property loans.

While the strong performance of earnings reports so far has underpinned risk appetite we remain concerned that the cost cutting that has enabled this will continue to take its toll on unemployment and consumption going forward. Without strength in economic data, any significant extension of risk could be vulnerable to pullbacks. This week the US Treasury is due to auction USD 115 bln of paper. So far this year US auctions have brought solid demand, but this week's auctions could be a litmus test as to whether signs of rising risk appetite are likely to have a material effect on demand for ‘safe haven' US government paper. Falling demand could undermine the USD and have negative implications for sterling given the similar surge in the UK government's financing need this year.

UK data this morning was limited to the Hometrack housing survey which showed flat prices during July consistent with a stabilising housing market. Cable's modest rise this morning is a function of the softer USD. GBP has been unable to make any headway vs the EUR following The Times Report on UK banks this morning and given the tailwinds from last week's much weaker than expected Q2 GDP report. Tomorrow, BoE lending data will be of interest is determining whether the door to further QE from the BoE next week is still open. Soft data could push cable back to the 1.6300 area.

Eurozone Jun M3 data was in line with market forecasts this morning. However, loans to households and companies at 1.5% y/y grew at their slowest pace on record. ECB member Gonzalez stated on July 24 that the ECB is confident that credit conditions will ease before long. Nevertheless, these data will underpin market expectations that no tightening in ECB policy is likely for some time. A rise in German Jun consumer confidence to 3.5 from a revised 3.0 in May provided further indication of stabilisation in the region. It follows last week's better than expected German IFO industrial survey.

This afternoon US Jun new home sales data and the Dallas Fed activity index are due.