FOREX-Euro slides on bank stress test concerns

* Euro pulls back from 2-month high vs dollar

* Euro hit by profit taking, concerns about stress tests

* Market awaits U.S. Q2 earnings beginning this week

(Adds comment, details updates prices)

By Naomi Tajitsu

LONDON, July 12 (BestGrowthStock) – The euro fell (Read more about the trembling euro. ) against the dollar
on Monday, pulling away from a two-month high as concerns about
the effectiveness of stress tests on European banks prompted
investors to trim long positions in the single currency.

The yen pared initial losses against the dollar after
Japanese election results showed political uncertainty ahead.
[ID:nTOE66A02V]

Market participants awaited second quarter earnings results
from U.S. firms, which kick off with Alcoa later on Monday. A
weak run of economic data has raised speculation the economic
recovery may be losing momentum and stung the dollar.

Many investors expect a solid earnings season.

Investors were also waiting for more details on stress tests
on 91 European banks — the results of which are due later in
the month — as the European Union seeks to restore confidence
in the sector. [ID:nLDE66B06L]

Analysts said that despite the euro’s rally this month, its
failure to break above a key downtrend line had stalled its
upward momentum.

“We saw a decent comeback in the euro in the past week, so
there’s been some profit taking on that move,” said Kasper
Kirkegaard, currency strategist at Danske in Copenhagen.

“There’s some nervousness in the market, and prices are
rising on risky assets.”

By 0946 GMT, the euro (EUR=: ) had fallen 0.6 percent on the
day to $1.4975, easing from $1.2723 hit on Friday.

JAPAN ELECTION

Some in the market said the euro had been knocked by a
weekend German magazine report that stress tests would include a
haircut on German sovereign debt under certain conditions, as it
followed reports last week that the tests would exempt German
haircuts. [ID:nLDE66A061]

Analysts said the efficacy of the stress tests would depend
on how much detail they include, and the possibility the results
may be thin on in-depth information was weighing on the euro.

The single currency was also under selling pressure after
its failure late last week to rise above a downtrend line drawn
through the euro’s high hit in December and an April peak, and
resistance is now seen just above $1.2700.

The dollar index (Read more about the global trade. ) (.DXY: ), which tracks its performance versus
a basket of other currencies, rose 0.5 percent, recovering from
a slide to 83.622 on Friday, its weakest since May 10.

The latest figures on IMM speculative positions show a
significant trimming in net long dollar positions last week,
which some analysts say may open the door to a dollar recovery
as investors start to rebuild long positions. [IMM/FX]

Against the yen, the dollar was up 0.2 percent at 88.70 yen
(JPY=: ), having climbed as high as around 89.15 yen.

The yen initially suffered after Japan’s ruling coalition,
led by Prime Minister Naoto Kan’s Democratic Party of Japan,
lost its upper house majority in an election on Sunday, putting
at risk efforts to deal with the country’s debt. [ID:nTOE66A02V]

Tokyo traders said the election outcome triggered unwinding
in long yen positions, which rose significantly last week.

U.S. earnings, in addition to data on inflation, retail
sales and manufacturing, will be the highlight of the week given
growing speculation the U.S. economy may be stumbling.

Some analysts expect a mixed reading on the economy. But
given lingering banking sectors problems in the euro zone, they
were divided on whether the dollar would continue to suffer on
weak data or climb on strong economic readings.

“It remains to be seen how markets will weigh up poor
prospects for financials and sovereigns in Europe against
mounting fiscal and cyclical concerns in the US,” Citi analysts
said in a note.

They added that G3 currencies would underperform more solid
peripheral ones in volatile trade in the near term.

(Additional reporting by Tokyo Forex Team, editing by Nigel
Stephenson)

FOREX-Euro slides on bank stress test concerns