Tuesday, July 20, 2010

The Advisor Weblog

The Advisor Weblog

What to expect from the Stress Tests

Posted: 20 Jul 2010 07:46 AM PDT

While Euro has been in a strong bearish movement since early this year amid the sovereign debt crisis that started in Greece, and spread like fire in the woods to the entire euro-zone, the common currency has found relief in the all miraculous stress test to be released this Friday, July 23rd.

 
Since market players were aware that the euro zone authorities are more than willing to share the results, a sparkle of optimism hit markets, exacerbating an Euro rally that at this point, has reached the 1.3000 area. Yet hopefully I’m not the only one thinking that short covering, could also been one of the main reasons for this recovery: COT report showed extreme positioning in the EUR/USD shorts not seen in several years, and a strong bullish corrective movement was just next logical step, triggering then more and more short covering as prices continued to rise.

Optimism however lost steam by the end of last week, when authorities announced some of the data would not be published this Friday: so one just wonders: What does the euro zone have to hide? We all know results will be uneven; we all know where the stress will be higher: Greece, Spain, Portugal, Ireland; so, what could happen to Euro after the news?

There are a couple of possible scenarios that could affect the movements of the currency, and much more uncertainty that we are even imagining: we don’t know what the stress tests will actually report, either if banks passed or failed, if they will be allow to ask for capital to meet expectations, how much time will they have to do it, and so on; however I personally believe that the focus will be in what could be shocking according to current expectations, that is, that the stress test results will restore confidence in the banking system.

What will be shocking negative for Euro?

Shocking will be to know German and France have issues: if banks in the stronger economies of the euro zone don’t meet the standards, or the fact that the aforementioned weaker economies are worse off than expected: market attention should focus in not only the banks that failed to meet expectations, but also the amount of capital required to stabilize the banking system.

What will be shocking positive for Euro?

Little chances here; I can’t even imagine shocking positive results coming out, as the results of a test are not enough to erase the sovereign debt woes, or erase the spread among euro zone bonds. However again focus will be on capital requirements: a small amount for a few banks in already known troubled economies, could give Euro the boost needed to finally overcome the 1.3000 level, and sent it higher.

There is still, another matter to consider in this question: since early this year, market has been pricing in almost anything in advance; little of nothing has been left for the upcoming news, and price advances on future data are the everyday movements. At this point, most of the “probable positive” should be already priced in the euro crosses and recent movements. Expect the “probable negative”, to trigger more interesting bearish rallies then.

Hourly perspective for US session

Posted: 20 Jul 2010 06:36 AM PDT

GBP/USD approaches to key support

Posted: 20 Jul 2010 04:47 AM PDT

Here is the technical perspective for GBP/USD while pair approaches to key 1.5150/60 zone:

http://www.fxstreet.com/technical/forex-strategy/the-best-pair-to-trade-now/2010-07-20.html

Starting the day

Posted: 20 Jul 2010 04:45 AM PDT

Hi everyone and welcome back! Dollar is stronger this European morning, amid falling stocks across the world; Pound lost the 1.5200 level and approaches to key 1.5150/60 support area, while Euro struggles to hold above 1.2900 against greenback, despite reaching a fresh high around 1.3028 earlier in the day. Technically, EUR/USD needs to extend the fall across 1.2860/80 support area, to confirm a stronger movement down.

Question today,  will be is risk aversion/appetite mood, will be able to rule the common currency movements: we have housing data in the US in about an hour, that has been quite negative during the last couple of months: if readings come back again under expectations, stocks will likely extend the slump: watch for EUR/USD to lose that area, to confirm the risk aversion mode.

USD/JPY, capped under 87.20, will be again the pair more influenced by stocks, so maybe selling the cross near that level could be an interesting take for today. Anyway, here is the link for today’s calendar, while i prepare some technicals:

http://www.fxstreet.com/fundamental/economic-calendar/

Have a great day!
Posted by at 5:31 PM

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