Weekly market review for 26 – 30. 07, 2010

The released stress-test results were as relevant for the market participants as the expectations for them. According to the stress-test results 7 European banks out of 91 banks from 20 countries The released stress-test results were as relevant for the market participants as the expectations for them. According to the stress-test results 7 European banks out of 91 banks from 20 countries, which were being examined, did not satisfy with the applied requirements and needed additional capital in the amount of 3.5 billion Euros. Nevertheless, according to the forecasts of Goldman Sachs Group Inc. the additional needed capital was expected to be 38 billion Euros, and Barclays Capital predicted the additional needed capital in the amount of 85 billion Euros. The negative impact pressured the euro on Monday and the EUR/USD pair showed minimums at the $1.2888 mark. On the contrary, the British Pound continued its rally from the previous week, and Friday’s positive UK fundamentals extended their influence on the sterling. The GBP/USD showed a steady growth to the $1.5500 maximums. The GBP Hometrack Housing Survey, released on Sunday, showed unexpected decrease, but according to the experts’ opinion, this drop in prices reflected a “turning point for the housing market”.

On Monday the Australian dollar traded at the level of its 2-month maximums against the American dollar due to the expectations for the Consumer price index publication in Australia, which was predicted to show considerable growth, which in turn could lead to the principal rate increase by the RBA.

It should be mentioned, that the oil rate grew on Monday morning above the level of $79.00 per barrel as stock markets increased.

Overall, Monday showed risk appetite growth, which was also supported by the US new home sales in June. Its annualized volume turned out to be at the level of 330K, when the expected growth was only up to 310K.

As the risk appetites continued to grow on Tuesday, the euro strengthened and the EUR/USD pair showed maximums above the $1,3000 mark. The released German Gfk Consumer confidence survey showed growth to 3.9, which supported the euro and resulted in the euro rate growth against the yen to its 7-weeks maximum.

The release of the US fundamentals during the second part of the day shifted the trading dynamics. Risk appetites dropped as the US Consumer confidence index for July was published. The indicator decreased considerably (compared to the previous mark) to the level of 50.4 (its 5-month minimum level) against its forecast of 51.0. The USD Richmond Fed Manufacturing index turned out to be somewhat above the expectations at the level of 16, but lower than the previous month. The released later on USD ABC Consumer confidence happened to be below the predictions as well. As a result, the US dollar rate rallied and demand for the safe heaven currencies grew.

Wednesday saw strengthening of the euro again against major competitors. The stock markets growth as well as the positive fundamentals rendered support to the euro. The EUR/USD reached maximums around the $1,3040 level. The GBP/USD showed maximums at the $1,5639 level.

On Wednesday the Australian dollar had to step away from the previously reached maximums. The released inflation data turned out to be below the expectations. The Consumer price index for the second quarter grew for only 0.6% when the forecasted growth was at 1.0%. Therefore, the expectations for the principal rate increase by the RBA reduced. Therefore, according to the forecasts, the Reserve Bank of Australia would leave the principal rate unchanged at the level of 4.5%.

The US dollar pulled back against the yen as the negative fundamentals were released in the US on the same day. The Durable goods orders dropped in June for 1.0%, when experts forecasted growth for 1.0%. As the traders were still analyzing the release of the stress-test results, the published drop of the US durable goods orders also influenced the investors’ uncertainty in the trading dynamics.

The euro continued its rally on Thursday as the concerns over the US economy rehabilitation increased. The EUR/USD increased and reached maximums at the level of $1,3090. At the same time positive Euro-zone fundamentals supported the euro against the Japanese yen. The Euro-zone Economic confidence showed growth to 101.3 in July, which was above the forecast of 99.1. German unemployment rate was at the level of its expectations at 7.6%, which was a decrease from the previous month’s rate of 7.7%. In addition, the Euro-zone Business climate indicator showed considerable growth above its forecasts as well. The EUR/USD pair managed to establish maximums at the level of $1.3100. The sterling continued its growth as well and reached its 5-month maximum at the $1.5660 mark.

According to the expectations, the Reserve bank of New-Zealand increased the principal rate to the level of 3.00% on Thursday. But the statement, which followed the principal rate decision, mentioned the existing slow-down of the economic rehabilitation rate. Therefore, the national currency rate dropped.

The released Initial jobless claims dropped to 457K, while the forecasted level was at 460K. Positive US fundamentals pushed oil prices higher to the maximums of $78.49 per barrel.

The US dollar weakness continued into the Thursday’s American session as well. The US stock markets dropped as corporate reports did not meet the investors’ expectations.

Last day of the trading week showed unexpectedly positive US fundamentals. The University of Michigan confidence indicator turned out to be at the level of 67.8 against its forecast of 67.0. Risk appetites grew and sterling managed to set maximums at $1,5722. The euro continued to stabilize around its maximums at well. The USDJPY pair closed the week around the Y86 level.