Tests OK – Euro hesitant over the methods of the tests

At the moment, only 7 banks failed the tests, better than expected. Now the big question is about the quality of the tests. Until the methods of the tests are clarified, the Euro will continue hesitating. The number of failures is less important than the seriousness of the tests. Update: A case of a sovereign default wasn’t taken into account.

The European stress tests are slowly being released. Each bank gets its grade: pass or fail. Currently many Spanish banks receive a Fail grade. In the meantime, EUR/USD is slightly lower.

Cajasur, Banca Civica Savings Bank Group, Espiga and Unnim Savings Bank are among the Spanish banks that failed. Also the Greek bank Atebank failed.

EUR/USD jumped to 1.2920 immediately after the release, but quickly dropped to 1.2826, before bouncing up again. All in all, Euro/Dollar is slightly lower, but the event is still going on.

Update 16:30 GMT: Euro/Dollar extending falls to 1.2813 on the notion that the results are “too good to be true”. It currently seems that the Euro indeed falls on the stress tests.

It’s important to note that a case of a sovereign default wasn’t taken into account. Here’s what Christian Noyer, a senior member of the ECB had to say to explain this:

“The hypothesis of a (sovereign) default is excluded because the European states, especially in the Eurozone, have put several hundreds of billions of euros on the table with the support of the IMF to make this hypothesis completely excluded.

Do you believe the stress test results?

Update 19:30 GMT: Stock market rally in New York triggers risk appetite. Euro makes gains above 1.29, but still struggles under 1.30.

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