Euro Weakens As More Stress Test Leaks Are Disappointing

US dollar is softer on the day vs. the majors, gaining only against EUR and SEK as markets search for direction ahead of Friday’s stress test results. The euro is trading softly after making a marginal new high for the cycle vs. the dollar at 1.3029 Monday, and break of the 1.27 area would signal a move back to the July 13 low around 1.25. Euro is perhaps being pressured by less favorable leaks of bank stress tests (see below), which are feeding into market concerns that the tests will not be as rigorous as hoped for. The yen was firmer across the board, suggesting risk aversion is back in play today, while the Swiss franc was mostly firmer. EM FX was mostly softer, with Eastern European currencies faring poorly today. Biggest gainers on the day so far vs. USD are JPY, CAD, ZAR, INR, and NOK, while biggest losers vs. USD so far are CZK, EUR, PLN, RON, and HUF. China concerns continue, leading markets to pare back CNY appreciation views to the lowest since early June, while Brazil expected to hike 75 bp today (see below).

Asian markets were mostly higher, as MSCI Asia rose almost 1% today. HK outperformed, while Japan, Taiwan, and Singapore underperformed and were down on the day. European markets are higher so far today, with Euro Stoxx 50 up over 1%. Futures markets are currently pointing to a flat open for US equity markets today. (more)