More Serene than Stress

Posted on July 25, 2010 by larry | No Comments

Risk appetite generally improved again last week and there was little sign of nervousness ahead of the EU bank stress test announced late on Friday.
There was little late reaction participants appearing to await the digestion of the results over the weekend. The majority of subsequent comment seems to indicate that the test was too soft. Just 7 out of 91 banks failed the test but left many questions unanswered. Importantly Sovereign debt default was not included and the measure of reduced growth levels was far less dramatic than many would have liked to have seen.
It remains to be seen next week if the markets take the view that this was indeed to soft a test or that as the test is over and done with it is no longer an event risk for the market.I would favor the former but equity markets shrugged off any bad news last week preferring to focus on strong company data . This rather than comments from Fed Chairman Bernanke which indicates the Federal reserves ongoing concern about the strength of recovery in many areas. In Europe economic news tended to better than expected. German IFO numbers and in the UK more buoyant retail sales and 2nd Quarter GDP which was much better than the market anticipated.The technical picture improved for US equities and commodity currencies faired well.
All this leaves the forex market without too much to get its teeth into and few commentators with any real solid views as to any major trend moves. For the time being it seems more likely that the USD/ EUR will gravitate around these levels until either a real move higher in equities or another big sell off. The US currency has lost its appeal recently and as I have mentioned before while it may be temporary the Euro area problems are at least for the time being on a back burner.
Another week of similar trading would probably see a general sell off in volatility and narrowly mixed Forex markets for more of the summer.

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