Markets continue to trade as though US investors have returned from their summer holidays with a mandate to turn cash into assets. After a slow start, US equities have nudged higher, reinforced by more better-than-expected activity data despite disappointing earnings numbers from retailers Best Buy (BBY) and grocer Kroger (KR). Note that both the Dow Jones Industrial and Transportation averages posted new highs in tandem giving technical types a classic buy signal. The path of least resistance remains to the upside for now. While the majority of the market waits for the data to turn and a double-dip to be signalled, risk is managing to sneak ever higher (as the under weight and under invested get crowded into the trade). I still think it can push up to 1121 over the next 2-3 weeks where the next stern technical resistance awaits. I think we fail at this level, and fail hard. Today's economic calendar seems unlikely to undermine the optimists. In particular the market is hopeful that the NAHB homebuilders' index will beat market expectations.

Elsewhere the Dollar continues in the doldrums with EUR/USD testing the December 2008 highs with an eye on the September 2008 highs. Note though ever since the Credit Crunch got serious last summer, the 1.45-150 area has been a graveyard of EUR/USD rallies. The other consequence of the dollar's travails is the explicit boost to commodity prices.

Note there are rumours that an influential US consultancy report due to be issued today (the Smick Medley report) will say that two senior members of the Fed are in favour of raising interest rates as early as next week, but instead will start a campaign in favour of ending emergency policy via verbal communications as they know the most "dovish" committee member would not follow with serious intent for at least six months.

Today's Market Moving Stories

• Ahead of another round of data, Fed's Bernanke has indicated that the recession may be over but that a recovery will be slow. The former is already reflected in the market but valuations have yet to adjust to a more subdued growth outlook.
• The DPJ took control of Japan today and it looks like the Finance Ministry is going to veteran Fujii after all. His comments have just hit the newswire that a ‘strong JPY has merits for the Japanese economy' and is ‘opposed to FX intervention if moves are gradual.' These are dangerous remarks with USD/JPY so close to 90 and will embolden speculators to position for a move to 87.
• Chinese PBOC assistant governor Guo Qing Ping states that China is in no hurry to internationalise the Yuan adding that there are preconditions for a currency to achieve reserve status. For one it needs a strong economy, full currency convertibility and a developed financial market.