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Debate Over Stress Test Results

The USD finished the week softer against the EUR and GBP. Although Wall Street continues to turn in tentative results the broad market place showed that enough risk appetite exists in order to create a strong debate among bulls and bears. The greenback essentially finds itself at the weaker parts of its strong trend versus the EUR, and the GBP has pulled itself back into a fairly buoyant range. The U.S. did not release any major data on Friday, but investors will get New Homes Sales figures today and the estimate is 317K compared to the previous result of 300K. The housing market in the States remains a critical part of the economy and today’s numbers will be watched carefully. Tomorrow the CB Consumer Confidence reading and the S&P/CS Composite 20 HPI will be published. Highlighting the data this week in the States will be the Advanced GDP which will be brought forth on Friday.

Quarterly earnings will continue from the U.S. today and Wall Street will continue to keep a keen eye on the corporate reports. Some of the companies that will bring their numbers forward today are McDonalds, Honeywell, Akzo Nobel, and Ford. The USD has taken a hit as traders have shown the ability to push away concerns about a sluggish recovery in the States, questions about the methodology of the European Bank Stress Test Results, and continued evidence that a large proportion of investors remain sitting on the fence. Traders have found opportunity if they have had the ability to test ranges. Having said that, a huge amount of questions remain about the health of the major international economies, and the currencies and equity markets still have many hurdles to jump over.

The EUR showed that it had the ability to withstand the rumors that were cascading around the Bank Stress Test and finished the week within the higher realms of its recent range against the USD. The results of the Stress Test which came out on Friday evening are still being debated and tough questions remain about its measurements. While many point to a brighter future for the fiscal ability of Europe’s financial institutions, others continue to ask about criteria and what could take place if an economic recovery is not as attainable as has been prescribed by the ECB. The German Ifo Business Climate reading produced a result of 106.2, beating the forecast of 101.5. There will be no major data from the E.U. today, but tomorrow the GfK German Consumer Climate figures will be published. The crux of the story today for the EUR will be the manner in which the Banking Stress Test Results are examined and debated. The EUR is at the mercy of a ‘confidence game’ and its gyrations will be determined largely by the surrounding debate.

The Sterling finished the week within the stronger parts of its range against the USD. The GBP has had a very good run the past few weeks. The Sterling has gained a considerable amount of value on the heels of the austerity measures being undertaken by the U.K. government and on Friday it got an additional shot in the arm when the Prelim GDP number beat estimates and produced a gain of 1.1%. While in most instances a gain of 1.1% would not be something to create a glowing report around, the result was enough to bolster confidence among some who have been rattled by warnings of a possible double dip recession. There will be no major economic data from the U.K. today and tomorrow the CBI Realized Sales will be released. Traders have enjoyed a solid ride of momentum as the GBP has gained. Questions do remain on the horizon, but traders may continue to take on risk in the current environment.

The JPY remains a critical lynchpin and signpost that not all is wine and roses in the broad markets. Investors continue to keep the JPY in the stronger reaches of its range against the USD in what appears to be a move generated by risk adverse trading. Gold finds itself around 1192.00 USD an ounce and it has been solidly range bound for a couple of weeks. The Japanese currency is an important barometer of overall sentiment and it continues to show that caution remains palpable.

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