Bank Stress Test Inconclusive. |
The event of the day on Friday was the release of the European bank stress results. The European Banking Authority waited until very late in the day before publishing the results, probably to prevent “unnecessary” aggravation to financial markets, especially since the response is always unknown. In all, 90 banks across the European Union were reviewed for how much money they have in reserves, a cushion needed in case of economic slowdown across the continent.
Eight banks in three countries failed the test (5 in Spain, 2 in Greece and 1 in Austria) while sixteen others barely passed. Immediately, some countries challenged the results as inaccurate and overly pessimistic, insisting that they would not force their weaker banks to raise new cash. On the other hand, many economists warned that the tests were insufficient because they did not simulate the main risk hanging over Europe, a default by Greece and precarious position of other PIIGS countries. All said, the test turned out to be inconclusive – while it pointed out potential weak links in the system, it fell short of assuring markets about stability of European banking system. In response, the Euro did… nothing.
Few days ago, I discussed going short the AUD-NZD, if the 1.2780 support gets broken. We can see how price rallied for couple of days, before finally turning south in a decisive manner. My entry was at 1.2770. Originally, I thought about trying to capture 300 pips, which should have taken a week, maybe a little longer. However, the move was fast and I was perfectly happy to take 200 pips in a less than two days. Couple of reasons – I consider 200 pips so fast to be a good score for this pair and the direction could change after the weekend, perhaps drift sideways for a while, who knows? For more shorting opportunities here, I will turn to shorter time charts, like hourly or 4H.
The most intersting part of the day, as it often is the case on Fridays, was the start of the London session. I placed couple of usual straddle trades in the Dollar pairs, notably the GBP-USD. The first move was down, triggering my sell order at 1.6135. Because the preceding range was tight, my objective was a modest 25 pips, which was easily met. After that, the cloud of the bank stress test made to stay away. I had no idea what to expect, so why take unnecessary risks? Have a great weekend!
Mike K.
About the author: Mike Kulej
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