Euro appears to have weathered the E.U. bank stress test storm; White House estimates budget deficits well above $1 trillion level

Forex traders overcome negative feelings about stress test – The E.U. stress test results have failed to dampen forex traders’ enthusiasm for the euro. At press time (July 26 at 2:20 p.m. in New York), the euro was trading in the neighborhood of 1.30 USD, up approximately 0.72%. Trading sentiment has apparently been influenced by a close look at the latest monthly report on U.S. new housing starts. The Commerce Department reported on July 26 that although annual sales of new homes jumped by 24% in June compared to the previous month, there is no cause for fireworks. The seasonally adjusted June sales figure of 330,000 homes must be seen in relation to the revised figure for May, which was lowered to an annual rate of 267,000. That was the historic low point since recordkeeping began 47 years ago. This did not escape the attention of the forex market.

Continuing U.S. budget deficits seem to be unavoidable – The Obama administration on July 23 released its Mid-Term Review, a revised outlook for the federal budget for both FY 2010 and FY 2011. The newest figures suggest the U.S. economy may, in fact, not escape a double-dip recession, according to some forex traders. The administration is projecting a deficit of $1.47 trillion or 10% of GDP in FY 2010, which ends on Sept. 30. The deficit for FY 2011 is now estimated at $1.42 trillion, which amounts to 9.2% of GDP. Forex market observers believe this admission by the White House is another factor contributing to the July 26 decline of the U.S. dollar versus the euro.