Skepticism Over the Credibility of the Euro Zone's Bank Stress Tests

By: Hillel Fuld
The EUR hit a seven-week record vs the JPY on Monday as an increase in shares prompted dealers to unwind long yen positions, but pessimism about the credibility of the euro zone's bank stress tests limited its gains vs the USD.

Traders said interbank players who had bet the euro would fall below the key 110 JPY level, or an 8 1/2-year low of 107.30 yen reached in late June, were forced to dump their short positions as upbeat U.S. corporate earnings improved investor risk appetite, boosting riskier assets. Better risk tolerance also lifted higher-yielding currencies, with the AUD dollar striking a fresh 10-week record of $0.8982.

The Aussie now has resistance at $0.9000, with support seen at $0.8895 ahead of $0.8860. "In addition to higher stocks, charts suggest the euro is on an upward trend as the currency has managed to rebound sharply after hitting a recent low at 110.02 yen last week," said Mitsuru Sahara, chief manager of FX derivatives trading at Bank of Tokyo-Mitsubishi UFJ.