Weekly review for 19 – 23. 07, 2010

The past trading week saw diverse dynamics of the major pairs with fast changing directions. The traders were expecting the European stress-test results release, and various speculations effected the trading during the whole week. The past trading week saw diverse dynamics of the major pairs with fast changing directions. The traders were expecting the European stress-test results release, and various speculations effected the trading during the whole week. The European stress-test results were planned to be published on the 23-d of July. Some experts expressed their concerns that even if the stress-test results would turn out positive, market participants would consider these results inaccurate. At the same time according to the investors’ expectations, the release of the stress-test results would reduce the concerns over the Euro-zone budget deficit problems.

During the Asian trading session on Monday we saw the decrease of the euro rate as the rating agency Moody’s reduced the credit rating of Ireland to Aa2 with the stable forecast. The EUR/USD pair showed minimums around the $1,2900 level. The GBP/USD pair also showed some weakness and traded around its minimums of $1.5270.

Due to the national holiday in Japan, the financial markets were closed on Monday. As a result the morning trading volume was minimal. The yen was supported as a save haven currency, and reached its 8-months’ maximum against the US dollar. Nevertheless, the rate decreased after the Bank of Japan statement of its intentions to ease the monetary policy.

Due to the up-coming Australian Parliament elections date, the concerns over the possibility that the principal interest rate would not be raised next month, increased. As a result, the Australian dollar rate dropped.

The oil rate decreased to the level of $75.90 per barrel during the morning trading due to the concerns over the slow-down of the US economy rehabilitation rate. The gold price dropped as well to the $1,187.60 mark per troy ounce.

The euro continued its growth on Tuesday morning, since the expectations for the stress-test results supported the investors’ sentiments. The EUR/USD pair showed its maximums in the range of $1,3030. The results of the bank stress tests were expected to restore confidence in the European financial system. Positive Euro-zone fundamentals were released on Tuesday. In particular, German producer prices increased above the expectations: annualized June increase for 1.7% against the expectations of 1.1%.

The GBP/USD rate increased and reached the $1.5310 level, then dropped to the $1.5174 range. The British pound slipped to its minimums during the European trade as the UK major banks Mortgage Approvals increased for 48K in June after the previous month’s growth for 51K and forecasted increase for 52K.

After the released minutes of the RBA last meeting, the Australian dollar rate started to increase on Tuesday. According to the RBA statement, the GDP growth showed a trend rate. The Chinese stock market growth supported the Australian dollar as well.

According to the expectations, the Bank of Canada increased the interest rate to the level of 0.75%. The Canadian dollar increased and strengthened against the US dollar.

On the same day the oil prices grew during the morning trading as the greenback dropped against the major currencies. The gold rate was supported by investors’ expectations for the stress-test results and traded around the level of $1182.90 per ounce.

The released negative US fundamentals shifted investors’ trading approach during the second part of Tuesday. The US housing starts volume dropped and resulted in a new wave of concerns over the rehabilitation of the world economy. The euro rate decreased and the US dollar started to grow as the risk appetite dropped.

On Wednesday the market participants were waiting for the results of the ECB stress-test with increased emphasis. Some speculations over the released information that the German bank Hypo Real Estate did not pass the test, immediately influenced the euro dynamics, and the rate dropped. Therefore, the EUR/USD rate showed minimums in the range of $1,2791. At the same time the following positive quarterly corporate reports were released on Wednesday morning. Strong reports of Morgan Stanley, Wells Fargo, Coca-cola and Apple turned out to be above the expectations of the experts. The greenback rallied against the major currencies.

During the second part of Wednesday the Fed Chairman Ben Bernanke delivered his semi-annual monetary policy report to the Senate Banking Committee. He stated that economic forecasts stayed “unusually uncertain”. As a result, the US stock markets dropped. And the sterling decreased against the US dollar as the Bank of England intended to widen the measures of economic stimulation aimed to rehabilitate the UK economy.

The EUR/USD pair pulled back to the $1,2790 level on Thursday. But published Euro-zone statistics pushed the euro to the positive mode and the euro rate rallied to as high as the $1.2852 mark. The Euro-Zone Purchasing Manager composite Index for July unexpectedly increased to the level of 56.7 from 56.0 in the previous month against the forecast of only 55.5. The Euro-zone Purchasing Manager manufacturing index turned out to be 56.5 against the expected level of 55.1.

On the same day the sterling managed to reach its maximums at $1.5289 as the positive British fundamentals were released. Growth of retail sales in June above expectations supported the rate of the pound. The sterling rate increased against the euro as well. The growth of the British stock market followed the release of the positive Euro-zone fundamentals.

The yen continued to stabilize against the major currencies as the concerns over the slow-down of the US economy rehabilitation rate increase and the uncertain condition of the European financial system deepened. The USD/JPY rate set minimums at the level of Y86,30. But the US dollar managed to strengthen against the Japanese yen after the release of the positive US fundamentals. In particular, the US existing home sales for June happened to be above the expectations. But the US initial jobless claims increased considerably and turned out to be above the forecast. The FRS Chairman Ben Bernanke repeated during his testimony on Thursday that the economical development perspectives stayed unusually uncertain. After his statement the US dollar index dropped.

On Friday the ECB stress-test results were released, and only 7 European banks did not pass the test. This result was considered positive, but market participants started to question it’s accuracy. The EUR/USD pair still managed to close the trading week above the $1.2900 mark as the positive Euro-zone fundamentals were released. The German IFO-Business climate, IFO-Current assessment and the IFO-expectations indices turned out to be above the expectations. Therefore, the risk appetites grew and market participants were encouraged to sell low-risk assets again.