10th anniversary

euro

The EU wide Stress Test will be released later today. Anticipation is massive with consequences potentially going both ways. As Reuters prints: “Traders have been betting most of the 91 European banks being examined will pass. Analysts say if there are no ugly surprises, that will be euro supportive.”

The other side of that coin is the belief that, other than the exceptional case, the test is not severe enough. The Wall Street Journal reports John Raymond, a credit analyst at CreditSights, as saying: “he doesn't think the markets will get the level of disclosure they want from the tests and that the only cases where regulators have something negative to say will be where there is already a solution in place. “

On the eve of the release the Euro gained over 1% on the greenback and Kathy Lien, Director of Currency Research at GFT explains what can be expected for today's post release: “Not only is this the most anticipated event of the week, but it should single handedly determine whether the EUR/USD will sustain a move above 1.30 or head back towards 1.25.”   

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Mitul Kotecha posts: “Importantly and perhaps a factor that could hit the credibility of the tests, the sovereign shock scenario is said to not include a scenario of default on sovereign debt.”

Walid Salah El Din, from FX Recommends, explains his outlook for the Euro: “After the greenback could have some of its lost ground across the broad pressing the single currency down from above 1.3 to end last week at 1.2926, it could repeat this again today in a stronger way and the single currency is trading below 1.29 versus the greenback currently after finding support at 1.2838 with the market increased worries about the waited stress test results”.

“There won’t be a rebound in European banks unless we have stress tests,” said Dirk Hoffmann-Becking, a senior research analyst at Sanford C. Bernstein in London who tracks European banks including Barclays Plc, Deutsche Bank AG and UBS AG. “But stress tests won’t resolve the sovereign debt crisis.”

“There are a lot of insolvent European banks and the question is whether we’ll see them because they give us decent data,” Kenneth Rogoff, Harvard University professor and former International Monetary Fund chief economist, said in a Bloomberg Television interview in Hong Kong. “They need a lot of restructuring. They’re in denial.”

“You can’t just have stress tests, you’d better prescribe some medicine as well, which is going be more capital-raising,” said Hank Calenti, a credit analyst at Royal Bank of Canada in London. “If some institutions need access to government recapitalization or other improvements, the market needs to know how that’s going to happen.”