The markets continued to gyrate this week, as investors remained fearful of issues related to European debt, specifically the debt related to Greece and Spain.  The Euro after facing heaving selling pressure mid week was able to bounce and finish up the week with a slight gain.  The S&P 500 Index also faced a large push to the downside but managed to climb higher to finish the week with a small loss.  With all the gyration in the market, the S&P 500 Index is having a difficult time with strong resistance - the 50 day moving average.

Nervousness in the Forex market resumed as dented US home sales and the Fed’s exit scheme weighed on the Fed’s pledge to low rates. Yesterday the Fed Chairman Ben Bernanke gave his Semi-Annual testimony to Congress. The Fed chairman outlined the move last week to raise the discount rate to 0.75% was strictly a move towards normality and does not pose a preliminary move towards a hike of the benchmark rate. The Fed chairman reiterated the benchmark rate will be low for an extended period stressing that the US job market remains extremely fragile and acts as a lager on the US economy. The Fed chairman emphasized the importance of the housing market as US banks hold a substantial exposure to the market. However the chairman gently avoided reference to the weak housing figures as to prevent fears over the Feds intention to exit the Mortgage debt market.

After presenting a volatile first hour, the U.S indices plunged by over -1.5% as economic data showed that consumers are still doubtful about the economic situation.  Even though the housing market showed relative strength with the S&P/Case-Shiller index climbing by 0.3%, Consumer confidence dropped to a 10 month low of 46 points.

According to the data, investors are now more pessimistic about the economy than they were at the depths of the 2007-2009recession. The percentage of consumers anticipating an improvement in business conditions over the next six months decreased to 16.7% from 20.7%, while those anticipating conditions will worse increased from 15.3% from 12.7%.One must note that the Consumer Confidence Survey is based on a representative sample of 5000 U.S households.

Last week the Fed surprised markets by hiking the discount lending rate to banks by 25 Basis points to 0.75%.The Fed went out of its way to emphasize this is solely a move towards normality and does not reflect on the highly watched benchmark rate which affects lending costs directly. Nevertheless Forex players perceived this move as a preliminary step towards eventual hike of the key benchmark rate and moved into Dollar buying across the board. The Euro Dollar dipped the 1.34 level the Sterling Dollar traded at the 1.535$ zone and the Yen hovered around 92.Althogh Dollar buying eased a bit with most currencies bouncing back, Forex sentiment remains rather sensitive to the probability of Fed tightening.