FOREX-Euro post-stress test gains cut as caution sets in

* Euro flat at $1.2900 (EUR=: ), pares early gains

* Yen rises as risk-taking fades; European shares turn lower

* IMM speculators cut net short euro positions last week

(Adds quotes, updates prices)

By Tamawa Desai

LONDON, July 26 (BestGrowthStock) – The euro erased early gains
against the dollar on Monday as caution set in after initial
investor calm in the wake of the release of European banks’
stress test results late on Friday.

Early risk-taking sentiment faded, with European shares down
0.4 percent (.FTEU3: ) by mid-morning.

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

“Any downside lurch has been prevented by the generally
reassuring conclusions of the tests … no surprises as to the
vulnerabilities, and no real headache in terms of the required
capitalisation to bolster their position,” said Daragh Maher,
deputy head of FX strategy at Credit Agricole CIB.

“At the same time, any relief rally for the euro has been
curtailed by inevitable criticism about some of the deficiencies
of the stress test assumptions.” [ID:nLDE66M1FF]

By 0844 GMT, the euro was flat compared with late U.S. trade
on Friday at $1.2900 (EUR=: ), falling from a session high of
$1.2958.

He added the euro may make a push towards $1.3125, the 38.2
percent retracement of the December to June move, but a rise to
that level would attract reversal plays in the pair.

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

Some said the euro’s gains could be restricted by this
week’s redemption of maturing euro zone bonds and coupon
payments worth some 45 billion euros, according to Citi
estimates. [ID:nLDE66M1PR]

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.

Data from the Commodity Futures Trading Commission showed
currency speculators cutting 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].
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For a graphic of dollar positioning, click

http://graphics.thomsonreuters.com/10/CFTC_CURR.html
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YEN GAINS

The yen gained broadly as investors stepped back from
risk-taking.

The euro hit a seven-week high of 113.49 yen (EURJPY=R: ) as
dealers unwound long yen positions, but then ran into offers
from Japanese exporters around 113.30/50 yen which took it
lower. It was last down 0.3 percent at 112.50 yen.

That helped pull the dollar down 0.3 percent against the yen
to 87.16 yen (JPY=: ).

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

“The dollar will remain weak on the back of weaker U.S.
economic data and on the lack of a credit event,” said Hans
Redeker, global head of FX strategy at BNP Paribas, he said.

The dollar index (Read more about the global trade. ) was flat at 82.50 (.DXY: ).

The Australian dollar came off fresh 10-week high of $0.8990
(AUD=D4: ), while sterling also failed to hold a three-month high
of $1.5502 (GBP=D4: ).

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FOREX-Euro post-stress test gains cut as caution sets in