This week’s primary influence has been deeply rooted in speculation over stress test results as well as the flood of earnings reports that, so far, indicate that profits are on the rise. These mixed signals have been too much for the Dow to bear. The index was sent back and forth between positive and negative territories. Within the last hour of the trading day, the Dow plummeted off of 60 point gains to end the day down more than 80. Nevertheless, the market may remain range bound until the entire earnings season has played out and all stress tests have been made public. Until this time we may be subject to a constrained trading pattern. The currency markets choose the pound to be the big loser of the day. Otherwise, the dollar rallied against the commodities currencies but fell against the yen and euro.

Global equities took a severe pounding in today’s trading. For the U.S., concerns over another wave of banking crises seem to take hold of investor’s sense of fear and uncertainty. The Dow was sent down more than 3.0%, while crude prices plummeted nearly 9.0% on the day. With economic data at a minimum for this week, the primary driver in the U.S. will remain to be the flood of corporate earnings. While news has been primarily promising thus far, many are still convinced that this will be the seventh consecutive monthly decline in corporate earnings. Accordingly, the standard risk adverse formation took shape in favor of dollar and yen strength. Crosses bared the brunt of the selling, sending AUD/JPY spiraling down by more than 4.5%.

The big story in the financial markets today was not the improvements in economic data, but the improvement in earnings. The health of the financial sector is critical to the recovery in the U.S. economy and therefore investors are keeping a particularly close eye on the reports from the banking sector. In order for the global economy to have any chance of recovering, banks need to stabilize and start turning a profit so they will feel comfortable enough to lend. Therefore the better than expected results from Wells Fargo has been received positively by the equity and currency markets. The U.S. dollar sold off against the commodity currencies and rallied against the Japanese Yen. The dollar also gained strength against the euro and British pound, which is not in line with the improvement in risk appetite because of euro and pound specific reasons that we will discuss further in the respective sections.

The U.S. dollar has ended the week lower against all higher yielding currencies as the actions by Washington and leaders of the 20 largest economies have helped to restore risk appetite. USD/JPY which tracks the market’s sentiment broke 100, to trade at the highest level since November. The fate of the dollar in the week ahead will be largely dependent upon whether we are at a turning point in the global recession or if investors have been misled by false expectations.