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Daily News from Senior FX Analyst – Samuel Allen

European stress test results were released last Friday and apart from the immediate market reaction there has been very little sustained movement at all. The results were in line with the prediction with around seven of the 91 European banks that were tested failing the tests. These kinds of figures should’ve lifted fears concerning the future of the European economy and prompted a relief rally, but, it didn’t. Instead the criterion used to test the banks has been questioned and calibrated to ensure that the only banks that failed the tests were the ones due to be restructured anyway.

The pound is still benefitting from the June GDP figure announced last week and although it could be revised back down next month it has helped to drive the GBP/USD rate to its highest level since Feb 2010. The momentum is still good and a close above the 1.5500 GBP/USD rate might well signal a rise to the next resistance level of 1.5800.

Sterling has also shown good gains against the Antipodean currencies today after and all eyes are watching the Kiwis rate decision on Wednesday to see whether they will again raise their benchmark rate 0.25% to 3%, the market has factored in the rise and anything outside of predictions could trigger some volatility.

Canadian dollar sellers are still benefitting from their recent rise in interest rates but the rate of exchange against sterling has still managed to recapture the 1.6 GBP/CAD level today which has proven itself as a very comfortable level for the cross this year. The commodity currency has also benefitted from high oil prices, oil rose 3.9% last week to $79 a barrel in New York.  Demand for Canadian government binds has also risen in line with their growth predictions for 2010/11 which should show that the Canadian economy will grow faster than expected.