Sell the Euro Against Dollar Ahead of Tomorrow's Stress Tests, RBS Says

Investors should sell the euro against the dollar ahead of the release of European bank stress tests tomorrow, targeting a “dip” to $1.26, according to Royal Bank of Scotland Group Plc.

“People wouldn’t want to go long on the euro into the stress tests,” Paul Robson, a senior foreign-exchange strategist at RBS, said today in a telephone interview from London. “Expect it to trade weakly into the results, to trade weakly afterwards and significantly lower over the next six months.”

The euro traded at $1.2917 against the dollar as of 3:22 p.m. in London, down from the two-month high of $1.3029 earlier this week.

European regulators are examining the strength of 91 banks to determine if they can survive potential losses on sovereign- bond holdings.

There’s “uncertainty over the timing of the announcement” as well as the potential for a “communication error” on the part of the European regulators, said Robson. “This isn’t going to be a defining moment of the euro-area crisis. We are in the slow burn.”

To contact the reporter on this story: Chris Kay in London at ckay5@bloomberg.net

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