TradingFloor.com highlights: EU summit opens a new can of worms

MACRO: Europe’s Indian summer to yield to a harsh winter of volatility

Steen Jakobsen, Chief Economist at Saxo:

"The EU Summit in June was hailed as a game changer and the big winner was the Spanish president Rajoy. Last week's EU Summit was a different story, as the announced banking union remains merely a plan to have a plan because Germany and Club North have decided that 'conditionality' is an integral part of a future compromise. German Chencellor Merkel also finally sent a clear message on the key issue of legacy debt: there will be no direct injection of European Stability Mechanism (ESM) funds into Spanish or Irish banks, so this means that Rajoy has lost his escape route and is now reduced to a prisoner’s dilemma situation with Germany and the EU where he has the most to gain from doing nothing – essentially the same position Greece has had for years after its first rescue plan was put in place."

FOREX: Busy week ahead as we wait for EURUSD range to resolve

John Hardy, Head of FX Strategy at Saxo:

“Today has been an odd day – as Friday’s awful close in the US and all of the negative energy that seemed to be forming around poor US earnings has failed to ignite a wider bout of fear. We have to wait for the usual suspect levels to fall - 1.3000 in EURUSD, maybe 1.0250 now in AUDUSD, and parity in USDCAD, 1.5975 in GBPUSD and 0.8100 in EURGBP - before we start looking for a bigger move higher in the USD. Until then, we’ll have to bide our time within the range and see if the US equity market can do the heavy lifting required to fully reverse the short-term negative momentum developed on Friday. My implicit assumption, of course, is that any further crumbling of risk appetite from here would be accompanied by a USD rally."

EQUITIES: Technology stock drop, a sign of things to come?

 Matt Bolduc, Equity Analyst at Saxo:

“The markets continued upward their march last week with one minor hiccup: the US markets took a strong downturn on Friday, strong enough to warrant questioning whether this 4-month market rally would continue. Nasdaq took the biggest blow, with a loss of more than 2% on Friday. The loss was mainly driven by surprisingly poor earnings from Google, Microsoft, and a slew of semiconductor makers. The technology downturn didn’t spare anyone, with companies like Apple down 3.6% and Cisco down 3%.  It wasn’t all bad news however, Greece continues its slow march back to ‘equity recovery’ with another volatile but positive performance which saw the main Greek index gaining more than 6% last week.”