Traders will be looking for direction from Canadian bank earnings and a major speech by the chairman of the U.S. Federal after a summer-long rally that started to look frayed by the end of last week.

The TSX ended the week with a modest loss of 0.06 per cent as traders weighed whether the U.S. Federal Reserve thinks the U.S. economic recovery is in enough trouble to warrant another round of economic stimulus. But the TSX is up 6.6 per cent from the recent lows of early June.

The quarterly earnings season from the big banks kicks off Tuesday with Scotiabank (TSX:BNS) and Bank of Montreal (TSX:BMO), with the rest of the big banks reporting on Thursday.

And generally speaking, while analysts are looking to a positive quarter, they also aren't looking for anything out of the ordinary.

The five biggest banks posted a four per cent increase in profits during the previous quarter, earning a combined $6.55 billion as they benefited from domestic consumer banking operations. That's up from $6.28 billion a year ago.

The banks have reaped solid gains from a strong real estate market, but Watson doesn't think their bottom lines should be impacted much by slowing market conditions, caused in part by moves by Ottawa to limit amortization periods.

It is shaping up to be a busy week on the economic calendar and traders will take in the latest read on Canadian economic growth. Economists at CIBC World Markets expect the economy to have grown by 0.1 per cent during June, which would add up to annualized growth of 1.7 per cent.

In the U.S., investors will consider the latest reading on U.S. growth, consumer confidence and the Federal Reserve's latest report on regional economic conditions.

But the major economic event occurs Friday when U.S. Federal Reserve Board chairman Ben Bernanke makes major speech at the central bank's meeting in Jackson Hole, Wyo.

Hopes that the Fed will embark on another round of economic stimulus rose last week as the release of the minutes from its Aug. 1 meeting showed several members felt further support would be needed "fairly soon" unless the American economy improved significantly.

But analysts warn that it would be premature to expect the Fed to launch another round of stimulus in view of the fact that a slew of economic data released since Aug. 1 have pointed to an improving economy.

This includes better-than-expected employment numbers for July, rising retail sales, improving consumer confidence and most importantly, sales figures and higher numbers of building permits signalling a long-awaited rebound in the housing sector.

The Fed makes its next announcement on interest rates Sept. 13 and it could make an announcement on stimulus measures at that time.

Last week's gain left the TSX up almost seven per cent from the lows of early June and markets could have difficulty taking the rally further in the near term.

Robert Gorman, chief portfolio strategist at TD Waterhouse, said "the Republican convention next week, and the really intensive U.S. election campaign is a refocus on the whole fiscal uncertainty issue."

"Also, September is typically a tough month," he said.

"You have a period of market uncertainty before the election. So after a strong period, we may have some backtracking here for a bit in the short term. I would tend to be a little cautious here in the near term after this runup."