• The profound risk rally came to an abrupt stop as European stress test insufficiencies put new worry into the market. The Euro slid to 1.2720, British Pound dropped to 1.53, and Aussie hovered at 0.90, the Yen pushed to a critical threshold of 83.50.
• The Euro came to abundant amount of pressure as critics emphasized on the inefficiencies of the European Bank stress tests. First and foremost, some banks tended to exclude riskier bonds from their respected test and reduced some of the sums of their holdings by accounting for short positions that they held.
The following was not disclosed to the public, before or after the stress tests were held. In the midst of analyzing the stress test, the public became weary pressing the risk rally to the downside. Undoubtedly, insufficiencies in the bank stress test put a sway of new concerns in the market. The following news comes on the midst of new debt introduced to the markets by European economies.
Roughly €80 Billion of new debt is estimated to hit the market. For now, a wait and see game will originate of whether or not a new wave of sovereign debt issues will arise in the market. If the investors start becoming weary of investing in the European debt, the Euro could feel the pinch in the fore coming future.
• The Australian Dollar came under a bit of scrutiny in the market as Reserve Bank of Australia chose to keep the interest rates at bay of 4.5 percent. Even though the interest rates were expected to remain unchanged, a political victory for the Labour Party sparked a down pressure on the Aussie.
With a latest victory of the Labour Party, the planned taxation of the mining industry will take effect. A new tax will negatively affect the economy as the mining sector which represents a proportional part of the economy will be affected.
• Surprisingly, the unemployment rate in Switzerland remained at 3.8% compared to the expectations of dropping to 3.7%. Meanwhile, the policy board of the Bank of Japan, led by Governor Masaaki Shirakawa decided to leave the overnight call rate unchanged at 0.10% and pledged to maintain an extremely accommodative financial environment.
A lack of statement about the unparallel gain in the Yen was omitted, as a consequence the Yen rallied to a breakout threshold. Meanwhile, Japanese Leading Index dropped to 98.2 from 99.0, supporting the thought that the economy remains in bad situation.
• With a lack of economic events, we are unlikely to see major moves in the currency markets. In tantrum, the markets are unlikely to produce wild movements. In the matter of fact, we should expect risk appetite and risk aversion to battle it out for the dominance in the market. It is especially prudent to pay attention to key technical levels when trading these type of markets.