The market has been jittery and mixed since morning as investors weighed the results of Europe's Stress Tests amid the lack of moving fundamentals in the European session. While as the US entered the markets and the volume increase, the movement turned more bullish taking the market into its intraday highs.
Investors shunned the downbeat expectations for slowing recovery and gloomy outlook, which were triggered by Stephen Roach, non-executive chairman of Morgan Stanley Asia, as he said that global growth is expected to slow averaging 3.25-50% in the next three to five years which is less than the average of 4.7% in the five year leading to the recession.
Investors focused on the good results and the resilience exposed in the European banking sector, especially as the 91 banks that undergone the tests represent 65% of the banking sector in the EU. Not only that the tests showed seven only incapable of sustaining a recessionary or sovereign crisis but the total amount of capital they need to raise at 3.5 billion was nothing compared to expectations before the tests.
The market was boosted and bulls gained the power from rising equities supported by FedEx Corp which boosted its profit forecast, while followed by a June rise in home sales beating expectations which supported the projections for the bottoming of the housing slump.
Combining good equities performance and the positive aspects of the released data all supported the risk appetite and supported major currencies excluding the dollar which continues to be under bearish pressures.
Investors are reassessing the US economic outlook which remains weaker than that in Europe opposed to the previous period which in role is weakened the dollar over its counterparts, especially the European euro and sterling.
The dollar index which gauges its performance against six major traded currencies continues the southern course, and currently hovering around its intraday lows. The index opened at 82.60 recording the high of 82.65 near opening levels and slumping to the lowest recorded at 82.23 where it is currently trading. The index is under bearishness and likely to continue further especially since the index is trading among the 38.2% from above at 83.20 and targeting lower the 50% correction at 81.46 for the last upside wave from the bottom of 74.16 to the high of 88.73.
Since the dollar is on the slump, surely the major component in the dollar index, the single currency is on the rise, especially as investors now head to the euro opposed to the dollar after the resilience seen in the banking sector alongside good fundamentals opposed to expectations of a severe slowdown on the back of the debt crisis.
The euro is currently trading higher off early lows recorded at 1.2876 stretching to record the high of 1.2957 aiming at 1.30 areas and above once again this week. The pair is still hovering around its highs recorded so far at 1.2940 areas.
Sterling also continues to extend the bullishness, especially after the unexpected push from the 1.1% reported expansion on Friday for the second quarter. Sterling offset the downbeat news and focused on the growing economy and the surviving banks in the stress tests. Sterling versus the dollar surged to hit the 1.55 mark where it recorded the highest at exactly 1.5518 from where the pound could not prevail due to the lack of bullish momentum as the pair enters overbought areas declining to currently trade around 1.5470s. Sterling is still off early lows recorded around opening levels at 1.2876.
The Japanese yen is fluctuating versus the dollar, yet mainly failed to sustain the gains, especially as the sentiment turned stronger and the gains were seen for equities and higher yielding assets which limited the yens gains. The USDJPY pair is trading off early lows set at 86.80 currently around 87.28 around opening areas, though still off morning highs recorded around 87.71. We still see the pair capable of rising further for now, especially as the pair is trading in overbought areas and momentum indicators activated upside reversal signals over intraday basis.