Forex Playbook: July 18-24 – The Bears are Back
July 18, 2010 at 12:48 UTC || By Forex Playmaker
Equities markets closed lower in trading last week, as Friday’s violent selloff knocked nearly 3% off each of the major US indexes. The Dow ended the week lower by 1% while the S&P 500 lost 1.2%.
Of primary concern was the earnings release from Bank of America (NYSE: BAC), which warned of massive losses tied to the new financial regulation. The company warned that it may lose as much as $4.3 billion in revenues annually as a result of FinReg.
In the Forex space, the euro continued to climb against the US dollar, topping the 1.30 handle for the first time since May 4. Forex Playbook advised readers that the EUR/USD could reach the 1.30 handle as the pair was trading near 1.27.
In the week head, investors can expect continued selling pressure for riskier assets, including stocks, oil and certain riskier currencies – AUD, NZD and CAD. Headline risk is certain to dominate trading throughout the week, leading into Friday’s release of the stress test results out of the EU. While investors can expect the EU to paint a rosy picture, confidence will depend entirely on the level of detail being provided in the EU report.
Additionally, investors will look toward Goldman Sachs’ (NYSE: GS) earnings report on Tuesday for additional clues as to the health of the US banking sector. Thus far, guidance has fallen short among other key banking institutions, including JP Morgan (NYSE: JPM), Citigroup (NYSE: C) and Bank of America.
Finally, the existing home sales report scheduled for Thursday release is expected to show month over month declines yet again. Still, the consensus estimate of a 5.15 million annual pace of home sales is likely to outpace reality. Instead, the annual pace will likely come in between 4.85 million and 5.05 million home sales, adding further pressure to the homebuilders, real estate and banking sectors.
Traders should continue to fade the rallies this week, if any rally presents. A short bias toward riskier assets should be maintained going forward, as all signs continue to point to a severe contraction in the quarters ahead.
