Daily Market Review Aug 5th, 2009

Are you preparing for a hectic Thursday and Friday?
After a thrilling Monday, the major U.S stock indices presented a choppy session yesterday, closing with an average gain of 0.2%. Even though the start of the session was characterized by mild profit taking, stocks edged up during the day, with the financial sector leading the way. Recent news from European banks has had an enormous impact on the markets, as large caps such as HSBC and Barclays, have shown impressive results for the second quarter. The Financial sector continued higher yesterday, propelled by Monday’s momentum, finishing the session with a gain of 2.02%

Apart from recent good news from Europe, showing signs of improvement within their banking sector, economic data also helped to push the indices higher. Even though personal income showed its biggest decline in four years, dropping by a whopping -1.3%, the personal spending figure shocked investors as the result showed that spending had increased by 0.4% during the month of July. One must note that while income isn’t increasing, consumers are feeling more optimistic and are therefore increasing their spending. Recent figures have also shown the sentiment has dramatically increased, especially as the markets have made an impressive recovery.

In addition, pending home sales jumped by 3.6%, exploding above its expected 0.8%. By taking a glance at the Philadelphia Home index one can see that a sector once battered by the subprime problem is slowly recovering, showing a much better situation.
Following Monday’s Dollar crash, the Greenback failed to present any major strength during yesterday’s session and traded mixed during most of the session. After such a large Dollar sell-off, one would expect some profit taking, but with equities driving forward, the pull back could be limited. In addition, one must note that important economic data is coming out towards the end of the week therefore currency movements could be limited up until the releases.

From a technical point of view the Index is now trading around major support of 77.5, one that could prevent an immediate break to the down side.

On individual pairs, most of the currencies paired against the USD presented a doji like candlestick, showing the uncertainty going forward - as investors now prepare for a hectic three days of trading. Currency pairs such as the AUD/USD, GBP/USD and EUR/USD have presented phenomenal rallies over the last couple of weeks, climbing higher and breaking major resistance levels. Many are now wondering whether the momentum can last, especially as most of the pairs haven’t presented any major correction along the way.

GBP/USD - Daily Chart

Market Data to Watch Out For

Even though most of the action will appear on Thursday and Friday, due to two interest rate decisions and an awaited NFP result, today’s economic data will also have a mild impact on the markets:

*Services PMI results are scheduled to be released in Germany, England and the Euro-zone. The numbers are currently expected to show a minor improvement in the services sector. Even though the number is still below 50, which normally indicates expansion, the result could help to drive the currency pairs to higher ground, considering the result is better than expected.

*Throughout the session the Euro-zone will release its retail sales currently expected to show a monthly increase, while the yearly figure is expected to show a decrease of -3.3%. Even though the numbers could cause intraday movement, one should note that it could be limited due to Thursday’s interest rate releases.

*The U.S will also release a wave of data, including; Durable Goods, New Orders and Factory orders. All normally have an impact on the intraday session.