U.S. stock futures are called higher this morning as investors look forward to a positive earnings season. Late yesterday Alcoa kicked off earnings season by reporting a $136 million profit on stronger-than-anticipated 22% revenue growth. Shares climbed after the report helping to drive the Dow higher.

Once again the focus will be on earnings with economic news taking a backseat. Last night's downgrade of Portugal's debt by Moody's could have pressured equities but investors ignored this data acting as if it had already been priced into the market.

The rise in the equity markets is pressuring fixed income instruments while driving up demand for higher yielding currencies with the exception of the Euro. Crude oil is expected to recover after a couple of days of weakness. August Gold which is in competition for investment Dollar's with equities is also showing strong gains. Traders are driving up gold as hedge money returns to the market following the downgrade of Portugal's debt and renewed concerns about sovereign debt issues in the Euro Zone.

On Monday, U.S. equity markets see-sawed most of the trading session before settling higher. After the markets closed, Alcoa reported a quarterly profit in line with pre-report expectations but revenue projections exceeded expectations.

September E-mini S&P 500 futures found support early in the session at a 50% price at 1066.00. Holding this level is the key to further upside action to perhaps 1081.00. A break through 1066.00 is likely to trigger sell-stops and possibly cause an acceleration to the downside.

Early weakness in the stock market helped boost September Treasury Bonds and Treasury Notes, but investor demand for higher yields and a firming equity market weighted on both markets into the close. Although the main trend is up, the charts indicate a correction to 125'25 is likely over the near-term.

Lower Asian and European equity markets overnight triggered a break in the Euro early in the session, but stable U.S. stock markets helped to hold it in a range most of the New York session.

Without any major economic reports to push the markets around, traders have decided to focus on two elements: the start of U.S. earnings season and the European bank stress results.

U.S. earnings season began after the equity market close on Monday afternoon. Since the Euro has been taking its cue from equity markets lately, traders expected Monday's first report from Alcoa to move this market.

European stress test results are not due until July 23, but that hasn't stopped traders from expressing concerns about the event. Traders continue to question the toughness and transparency of the report. There is also confusion as to how much information will be revealed and if the publication of the results will be limited to only large banks.

The question of ordering banks to recapitalize came up late last week when European Central Bank President Trichet mentioned in a speech that it may be necessary.

Technically, the September Euro confirmed last week's daily closing price reversal top at 1.2722. This pattern usually suggests a 2 to 3 day break coupled with a 50% to 61.8% correction. This would make 1.2436 to 1.2369 the next likely downside target.

Besides the cautious approach by investors ahead of the Alcoa earnings report after the close, U.S. markets reacted to the sell-off in the Japanese stock market. Japanese equities broke after the nation's ruling party lost more seats than expected in Sunday's upper-house elections.

This new round of political uncertainty could mean more economic woes for the country. Traders are worried that a drop in equity prices could increase the chance of a double-dip recession. In addition, some investors feel the economy will be threatened by the possibility of deflation once government stimulus fades and if global demand declines.

The September Japanese Yen was under pressure most of the night as traders interpreted the news as bearish for the currency. Early last week the Yen posted a daily closing price reversal top. This top was confirmed by a subsequent three-day break. Although the chart indicates there is room to the downside with 1.1030 a potential downside target, traders should be aware of a possible short-term correction back to 1.1369 before moving lower.

Over the next two weeks earnings reports should be the key market driver until the European stress tests are released. This means the Euro is likely to take direction from the U.S. equity markets. Robust earnings should drive stock prices higher and along with that, appetite for higher yielding assets. Commodity-linked currencies should also see greater demand if U.S. stocks can breakout to the upside. Conversely, worse than expected earnings results should trigger an equity market break taking the Euro and higher yielding currencies with it. Lower demand for risky assets could be beneficial for the Yen despite the recent political change.