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Focus to shift to Fed following ECB stress tests

The ECB’s stress tests have passed and it looks like third time lucky for the European banking sector although the focus is on Italy which has seen as many as nine fail. The euro managed to regain the 1.2700 level over night and is just below there at the time of writing trading at 1.2690 and indices are expected to see a degree of risk appetite return this morning. Of course the wider concern and real test is whether this means European banks will start to lend again and help prevent further declines in inflation across the Eurozone. At the end of last week there was a glimmer of hope as better than expected Eurozone PMI surveys were released and since then EURUSD has crept higher from the 1.2600 level.

Today will see a focus on Germany as IFO sentiment is released which is expected to show a continuation of the decline we’ve seen throughout the year as Europe’s biggest economy continues to look like its heading for a technical recession. Later there’s the services PMI number from the US as well as home sales data which will both be keenly watched for any potential to see if the dollar’s upward momentum can reassert itself. Considering that this is the week the Federal Reserve is due to end is asset purchase program, we could see volatility in the markets spike again just as it did earlier in the month.

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