A crazy week in the markets has gone by again, and I must emphasize the “crazy”. Sentiment has swung from one panic end to another euphoric end, and even so, investors can’t maintain each state of emotion with much conviction or get others to feel the same way they do. Many of them are confused about what to think about the “rally” that we’ve seen in the stock markets this week and the “rally” of the US dollar in the forex markets.

Early in the week, stocks kept falling on the woes of Freddie Mac (fre) and Fannie Mae (fnm), the two largest buyers of mortgage loans in the US, and in forex, the US dollar fell to a record low against the Euro on broad pessimism about the US economy. But later, when Bernanke said on Wednesday that Fannie and Freddie are not in danger of failure, everything reversed in the markets, as if the fundamentals had changed as well. As if Bernanke can cure the disease and not just the symptoms.

US corporate earnings came in mixed; Banking giant Citigroup (c) reported a quarterly loss of $2.5 billion in the second quarter after writing down $7.2 billion, and even though it is a huge loss, the loss per share is not as much as what the market had predicted. Merrill Lynch (MER) also posted a steep second quarter loss ($9 billion writedown). Tech companies Microsoft (msft) and Google (goog) posted profits that were less than what many had expected. The drop in profit experienced by Google was actually the steepest since it went public in 2004.

The upward move in stocks could also partly be the result of a short covering, since the SEC is now making a somewhat big deal of “naked short selling”, but has done a poor job in explaining to people what is allowed and what isn’t, and to whom. The SEC can join the ranks of the Fed, the Treasury etc, for they all seem to be lacking credibility, just when it is needed the most.

Dollar is chalking up a weekly gain against the Euro even though it hit a record low on Tuesday, and also against the Swiss franc and the Japanese yen. It however has weakened against the British pound. Much focus will be on oil prices; if they fall further next week, they would be dollar-supportive, but if not, we could see dollar weakness again.

In forex trading, the Euro’s bullish steam may have temporarily stalled against the dollar, but it has resumed against the Japanese yen. After EUR/JPY dropped more than 300 pips from its high of 169.70 in the earlier part of the week, it has now gone back up above 169.00. As for EUR/USD, it first has to break above 1.5910-20 if it intends to test 1.6000 again.

Friday’s German inflation data showed that German producer prices rose at its fastest pace since March 1982, increasing 6.7% year-on-year in June, surpassing the 6% posted in May, and was higher than expected.

To stay profitable in these uncertain times, make quick trades and remain skeptical. One day does not a market make.

Posted in Categories: Economy, Forex, Stocks, Videos.

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