The euro initially moved lower as stocks moved into the red amid worries prior to the release of European bank stress tests.
The test is administered by the European Banking Authority which will examine the levels of sovereign debt held on the trading books of 91 European banks. One may be skeptical of the testing as it only examines debt that banks currently hold as available for sale. The stress tests will not look at bonds that are not held for sale, therefore the test may miss a large part of the exposure European banks may have to peripheral European sovereign debt that could face a haircut. Nevertheless previous European bank stress tests have helped to build market confidence and this case should be no different. Short-term resistance for the EUR/USD comes at 1.4200 and a break here could target the 100-day moving average at 1.4290.
Movement in the majors has quieted as traders look towards US CPI at 12:30 GMT. The dollar will likely bounce higher should the core report show higher than the 0.2% rise as expected.
Sterling is down versus the dollar and the euro. A speech later by BOE MPC member Paul Tucker, considered a hawk on inflation, may talk up the need for addressing inflation concerns. However, sterling’s direction may be subject to events in Europe and in the US. Cable has resistance at 1.6240 from the falling trend line off of this year’s high.
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