Euro May Reverse Gains on Bank Stress Tests, UniCredit Says

The euro may reverse its recent advances against the dollar given the “slim” likelihood of a “very positive surprise” from European bank stress tests next week, UniCredit SpA said in a note today.

“The upside potential at this stage has probably been exhausted,” Marco Annunziata, chief economist at UniCredit in London, wrote in a note to investors today, calling the stress tests a “very high stakes game.”

European regulators are examining the strength of 91 banks to determine if they can survive potential losses on sovereign bond holdings. “Hopefully the exercise will be handled professionally enough to avoid a major accident,” Annunziata wrote.

The euro surpassed $1.30 today for the first time since May 4 and traded at $1.2970 as of 2 p.m. London time.

The European currency is unlikely to fall past $1.20 unless there is a “major negative surprise,” given that U.S. economic growth is slowing and the Federal Reserve “toying with the idea of quantitative easing,” Annunziata said.

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