FOREX-Euro lifted as investors move on after stress tests

* Euro up 0.2 pct at $1.2940 (EUR=: ), upside may be limited

* German bonds fall, Europe shares rise post-stress test

* IMM speculators cut net short euro positions last week

* Sterling at 3-mo high vs dlr; Aussie hits 10-week peak

(Releads, adds quotes, updates prices, changes dateline prvs
TOKYO)

By Tamawa Desai

LONDON, July 26 (BestGrowthStock) – The euro firmed against the
dollar on Monday as investors bought into riskier assets, calmed
after the release of European banks’ stress test results late on
Friday.

Just seven of 91 banks failed the tests, including in Spain
and Greece, for an overall capital shortfall of 3.5 billion
euros. [ID:nN25160076]

While some criticism of the credibility of the tests
persisted, no new bad news emerged and traders seemed ready to
put the event behind them.

German government bonds fell in early trade, with some
relief that the stress tests were out of the way, and European
shares tracked gains on Wall Street and Asia.

“The market assumes that we’ll see a positive reaction to
the stress tests, and CDS (credit default swap) spreads and such
will come down,” said Hans Redeker, global head of FX strategy
at BNP Paribas.

“The dollar will remain weak on the back of a weaker U.S.
economic data and on the lack of a credit event.” He said the
market was being driven more by yield differentials between the
United States and Europe, which had narrowed.

By 0710 GMT, the euro rose 0.2 percent from late U.S. trade
on Friday to $1.2940 (EUR=: ). It rose as high as $1.2958 after
breaching offers near $1.2950, traders said.

Near term support is seen around $1.2870, its 100-day moving
average.

Data from the Commodity Futures Trading Commission showed
currency speculators cutting down net short positions in the
euro. Net shorts fell to 24,251 contracts in the week to July 20
compared with 27,050 in the prior week. [IMM/FX].

EURO GAINS LIMITED?

The euro hit a 10-week high above $1.30 last week,
recovering after fears of a euro zone debt crisis and its impact
on European banks drove it below $1.19 in early June.

Brighter economic data in the euro zone also bolstered the
single currency.

But some said further gains in the euro may be limited.

“Friday’s stress test results are unlikely to provide any
significant support given lingering concerns over a European
banking system that is manifestly still reliant on European
Central Bank liquidity,” UBS analysts said in a note.

Against the yen, the euro hit a seven-week high of 113.49
yen (EURJPY=R: ) as dealers unwound long yen positions. It was
last flat at 113.04 yen.

Better risk tolerance lifted higher-yielding currencies,
with the Australian dollar striking a fresh 10-week high of
$0.8990 (AUD=D4: ). The Aussie now has resistance at $0.9000, with
support seen at $0.8895 ahead of $0.8860.

Sterling also hit a three-month high of $1.5502 (GBP=D4: ).

The dollar remained under pressure after recent U.S. housing
and manufacturing data has suggested recovery may be fizzling.
Economists have steadily marked down forecasts for Friday’s U.S.
second quarter gross domestic product. [ID:nN23108347]

The dollar index (Read more about the global trade. ) (.DXY: ) fell 0.2 percent at 82.31. The
dollar inched up 0.1 percent versus the yen to 87.32 yen (JPY=: ).

Tokyo’s Nikkei stock average (.N225: ) gained 0.8 percent
after the Standard & Poor’s 500 Index (.SPX: ) rose above 1,100 on
Friday as General Electric (GE.N: ) raised its dividend and
Honeywell (HON.N: ) posted better-than expected results. [.T] [.N]

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(Additional reporting by Rika Otsuka in Tokyo; Editing by Ruth
Pitchford)

FOREX-Euro lifted as investors move on after stress tests