Last week
The European banks’ stress tests were the centre of attention last week as the market was eager to see how the Europeans bank would react under different crisis scenarios. Prior to the release of the results, the Committee of European Banking Supervisors released some details as to how the tests were carried out. Traders were disappointed to realise that losses on sovereign debt holdings were applied just to the banks’ trading books and not on their banking books (bonds held to redemption). As a result these tests were seen as not vigorous enough, and some traders even doubted the credibility of the tests. Be that as it may, the results showed that only 7 out of 91 European banks failed the tests, but the market was not impressed, thus Eurusd ended the day only marginally higher from the open.
Other highlights of last week were the much better than expected European data. German IFO business climate came at 106.2 (exp 101.5) and UK’s preliminary GDP q/q came at 1.1% (exp 0.6%). These releases boosted the Euro and Sterling respectively, adding to the already positive momentum of the stock markets.
Data and events
Friday is the busiest day of the week in the economic calendar. German retail sales are expected at 0% from 0.4% while unemployment rate should be steady at 10%. CPI Flash estimate y/y should be higher at 1.8% from 1.4%. In the US, advance GDP q/q is expected lower at 2.5% from 2.7% while consumer sentiment should be higher at 67.5 from 66.5. In the UK, consumer confidence should be lower at -21 from -19. On Wednesday, German preliminary CPI m/m is expected higher at 0.2% from 0.1% and US core durable goods should come much lower at 0.6% from 1.6%. On Thursday, nationwide house price index in the UK is expected lower at -0.4% from 0.1% while unemployment claims in the US should come lower at 456k from 464k.
Strategy
EURGBP
The pair is trading near strong support at 0.8320. A weekly close below that level will open the way to 0.8100.
USDJPY
The pair is approaching strong resistance at the 88.00 level. A weekly close above that level will open the way to further gains.
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