EUR/USD: Worries Over Spain Linger After Bank Stress Tests

In the previous European trading session, the Euro lost versus the US dollar, despite the seemingly positive result of the Spanish bank stress test, as markets remain doubtful whether Spain would ask for a bailout or not. Meanwhile, the US dollar inclined versus the shared currency on increased demand for safer assets. In today’s European trading exchanges, the EUR/USD is expected to extend losses as market sentiment continues to be on the downside.

The result of the independent audit from Oliver Wyman revealed that Spain’s banking sector needs 59.3 Billion Euros of extra capital to boost the capacity of Spanish banks to prevent a serious economic collapse. However, markets remained skeptical about its next move, if it would seek for a full-blown bailout, especially now that four of its regions have already requested for financial assistance from the central government. Now that the result of the independent audit has been released, markets now turn their attention to the review of Moody’s Investors Service of Spain’s sovereign credit rating. Despite the stress test coming in line with market expectations, a credit downgrade by the ratings agency is seen to weigh on the markets.

For the Greenback, it is expected to turn up versus the shared currency on increased demand for safer assets. Kengo Suzuki, Currency Strategist in Tokyo at Mizuho Securities Corp., was quoted in Bloomberg News as saying: “The global economic outlook has become increasingly uncertain. Investors are buying safe -haven currencies such as the Yen and Dollar.” With these foregoing factors, a short position is suggested for the EUR/USD in today’s European trades.

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