Bank Stress Test Leaves Currencies Un−Changed
Friday, July 23, 2010
, Posted by Usman Ali Minhas at 11:35 AM
The banks were put through a hypothetical scenario based on a double dip recession, coupled with a 20% decline in equities. The initial results indicate a more resilient European banking sector, surpassing many expert’s forecasts. Despite market chatter that this test may have been more lenient than the U.S equivalent, the positive outcome should restore some confidence in the region and provide transparency for market participants.
As the news broke EUR/USD broke to the upside through the 1.2900 handle. However, this move was short lived and has subsequently fallen to 1.2820. Stocks have been choppy for the most part of the day and the results of the stress test have done little to give traders a firm direction.
Separately there was a mixed batch of data for the markets to interpret. German IFO Business Climate produced a figure of 106.2, better than the forecast 101.5. Out of the U.K the Preliminary reading for 2nd quarter GDP surprised to the upside at 1.1% growth, 0.5% ahead of the expected 0.6%. Finally Core CPI m/m and CPI m/m out of Canada disappointed to the downside. With inflationary pressures subdued combined with another poor Retail Sales (earlier this week), I get the feeling that the Bank of Canada will likely sit on their recent rate hike for the near future.
