The disappointing earning reports of Bank of America and Citigroup have effected negatively on the market sentiment by the end of the week bringing back to the market the worries about credit market earning ability and the growth outlook with the slump of July University of Michigan consuming sentiment preliminary reading to 66.5 from 76.0 in June while the market was waiting for declining by just 2 figures to 74 even the TIC net long term transactions of May which was expected to be 73.7B$ from 83B$ in April came down to 35.4B$. The investors' risk appetite which have moved up with the beginning of the earning releases of Alcoa and Intel reports have dampen by these reports which increase the worries about the banking sector again. The loses in the equities market have continued in the beginning of this week after Dow had pared all of last week gains closing down about 100 points last Friday as the series of weak released economic data from US which have started with the slide of US consumer confidence of June to 52.9 while the market was waiting for 62.9 and June US ISM manufacturing index which was expected to be 59 from 59.7 in May came at 56.2 besides the increasing worries about the housing market performance in US which has deteriorated in May as the pending home sales have fallen by 30% while the market was waiting for decreasing by just 10% after the disappointing new home sales of May which were awaited to be 470k from 507k in April but they have shocked the market with just 300k falling by 32.7% and again we have returned to the losing of jobs in June by another 125k of the non-farm payroll after adding 413k in May while the market was waiting for losing just 100k and this deterioration has continued into last week with the releases of US retail sales of June which declined by .5% while the market was waiting to have a flat reading, US July Empire State Manufacturing which was forecasted to be 18.95 from 19.57 in June and it has fallen to 5.08 and also US July Philadelphia Fed Business Survey which was waited to be 11.5 from 8.0 in June and dropped to 5.1. The greenback could have some of its lost ground across the broad pressing the single currency down from above 1.3 to end the week at 1.2926 and the cable which could get above 1.545 to close below 1.53 in an unwinding wave of carry trades by the end of the week because of the market focusing on the earning reports and the increased signs of weaker growth pace in the second half of this year can lead to a double dip recession risk. The greenback has been really hurt recently by these recent weak economic data from US which put doubts about the growth solidity in US suggesting a weaker than expected interest rate outlook as the fed will face difficulty in withdrawing it's accommodative easing policy steps while the growth is still struggling and the economy losing back jobs which can exacerbate the consuming and business sentiment again turning back down.
The markets are still anxiously waiting for the EU banking stress tests results which are expected to give clarifications about the current financial situations of the major banks in EU by the end of this month to know further from the banks itself to how far they are exposed to the unsustainable debts of the struggling small countries inside the EU and outside of it to know its right needing for further funding to sustain their financial position as the market is still worrying about this position after the ECB had announced last month that the long term debt refinancing problems in Europe highlighted the need of 800 billion euros by the end of 2012 suggesting that the European banks are in need to be ready for facing bad loans following the debt crisis which can reach 123 billion euros for 2010 and 2011 to reach 105 for 2011 and for facing the bad loans from 2007 till 2009 they should be ready with 238 billion euros.
The single currency could get over 1.30 for a while last Friday with market easing worries about the debt crisis situation in EU after another succeeded Spanish auction last week as there is a growing believe that the worst of the debt crisis is over in the Euro area right now which was essential to the single currency to which could gain momentum again last week with the breaking of 1.2698 after finding support again above 1.255 versus the greenback. Now, the next main resistance should be at again at 1.3 psychological level then 1.3096 and 1.3114 which is the 38.2% Fibonacci retracement level of the falling from 1.5142 to 1.1874 from and the pair can face difficulty by god's will in crossing this area while the next major support is still at 1.255, 1.2452, 1.2165, 1.2044 and 1.1954 and 1.1875 which has become the pair main defending line before 1.16 whereas the pair has started its rally to 1.604 before falling again to 1.233 amid the credit crisis and rising back forming a lower high at 1.515 in the beginning of last December.
Walid Salah El Din