FOREX-Euro slides on worries over bank stress tests

* 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 quote, detail)

By Neal Armstrong

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

The yen pared losses against the dollar which followed
Japanese election results showing 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 of stress tests
on 91 European banks — the results of which are due on July 23
— as the European Union seeks to restore confidence in the
sector. [ID:nLDE66B06L]

“European markets cannot escape fears that next Friday’s
publication of the results of bank stress tests could bring
negative results,” said Jane Foley, research director at
Forex.com.

By 1115 GMT, the euro (EUR=: ) had fallen 0.6 percent on the
day to $1.2570, easing from $1.2723 hit on Friday. Traders
reported Asian demand around the day’s lows at $1.2550 with
stops lurking below, ahead of stronger bids placed on the
approach to $1.2500.

Option expiries at $1.2600 were set to roll off at the 1400
GMT cut.

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,
countering 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 was 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.
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For a graphic on CFTC futures positioning, click on

http://graphics.thomsonreuters.com/10/CFTC_CURR.html
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JAPAN ELECTIONS

The dollar was back to flat at 88.57 yen (JPY=: ), having
climbed as high as around 89.15 yen in Asian trade.

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.

(Graphic by Scott Barber, additional reporting by Naomi
Tajitsu, editing by Nigel Stephenson)

FOREX-Euro slides on worries over bank stress tests