Monday, July 18, 2011

Markets Digesting Friday's European Bank Stress Test Results

Previous session overview
Investors sold the euro Monday as concerns about the euro-zone debt crisis and risks for contagion to other member nations plagued the common currency. 

Markets were also still digesting Friday's European bank stress test results, which did little to boost confidence in the European banking system's ability to withstand a sovereign default. Though only nine banks failed out of 90 top lenders, markets largely interpreted the test's parameters as not being strict enough, analysts said. 

Meanwhile, the ongoing debate about raising the U.S. debt ceiling limit kept investors wary of the dollar as well. 

The euro fell to USD1.4055 against the dollar from USD1.4150 late Friday. 

Earlier in the session, the common currency hit new all-time lows against the classic safe-harbor Swiss franc, while it also slipped lower against the Japanese yen. The dollar also hit a new all-time low against the Swiss franc earlier the session, but later pared those losses. 

The Canadian dollar hit session lows early Monday as investors pared exposure to risky assets and higher-yielding currencies on lingering concerns over U.S. and European sovereign debt. 

Risk aversion, which roiled markets in Asian hours, spilled to North America, pushing oil to session lows, and pressured equities futures. 

The U.S. dollar hit session highs Monday morning, rising to CAD0.9607 from CAD0.9537 late Friday.
Market expectation
While the euro could see further downside against the dollar, analysts say the debt ceiling debate in the U.S. will likely prevent any steep falls for the common currency in the near-term.

The USDCAD found firm resistance over Europe at the CAD0.9600 technical barrier, but within the first hour of the North American session attempts to consolidate gains to the upside of it. With possibility of the USDCAD continuing above, immediate resistance is listed at CAD0.9612 (10-Day MA), CAD0.9625 (Hourly High Jul 15) and CAD0.9668 (July 13 High). Below, support is placed at CAD0.9527 (July 18 Low, Lower Bolli), CAD0.9513 (Daily Low May 11) and CAD0.9505 (Daily Low May 4).

With gold prices surging to fresh historic highs today, the AUDUSD may see a modest recovery in which resistance could be expected to be seen at USD1.0655 (Hourly High Jul 18), USD1.0690 (10-Day MA) and USD1.0747 (Hourly High Jul 15). Below, support is placed at USD1.0579 (Daily Low Jul 13), USD1.0525 (Daily Low Jul 12) and USD1.0516 (100-Day MA), dealers said.