The European common currency is currently trading above the highest level in two months versus the dollar; however, it may drop as many investors are cautious before the release of stress tests on European banks this week which is discouraging them from taking long positions on the euro.

Today, Moody's Investors Service downgraded the Ireland's credit rating to Aa2 from Aa1 due to the decline in the government'sability topay debt after the budget deficit hadexpanded remarkebly. Also, Moody's slashed rating for bad banks to Aa2.

In addition, the IMF and the EU suspended a review of Hungary's funding program and urged the government to adopt stricter austerity measures toreduce the deficit that exceeds the EU's 3% ceiling, whichfocused light onthe debtwoes in the euroregionahead ofthe release of the stress tests results on July 23.

Also, euro area current account showed widened deficit in May and construction output fell in May, according to the data released today.

Thus, a downside correction is possible, especially as the euro-dollar pair is currently trading in an overbought area, as seen by the Stochastic Oscillator momentum indicator on the daily charts.

Regarding the euro-dollar pair, it is showing incline on the daily charts, yet gains were minimized after the pair had touched a high of 1.2991 as it dropped to 1.2940, where it is currently trading. The euro is taking advantage of the dollar's drop due to uncertainty surrounding the U.S. recovery after the wave of abysmal reports released recently.

The dollar index, which tracks the dollar movements versus a basket of major currencies, slipped to a low of 82.27 today but currently gathering strength to rebound as it lowered losses to 82.57.

The euro-dollar pair recorded a low of 1.2869 earlier today and failed to continue its advance as it approached strong resistance at 1.30, while it is predicted to move between support and resistance at 1.2910 and 1.2985 respectively.

As for the sterling-dollar pair, it extended losses for the second day after a report showing that U.K. house prices dropped for the first time in a year in July which raised concerns about recovery of one of the major sectors in the economy. The breach of support at 1.5273 helped the pair to reach 1.5254, whereas it is expected to move between support at 1.5170 and resistance at 1.5350.

Concerning the dollar-yen pair, it rebounded on the daily charts after three days of decline as the yen weakened on speculations the bank of Japan will ease monetary policy. For now, the pair is trading at 86.97, recording a high of 87.21 and a low of 86.46, whereas support is seen at 86.40 while resistance is at 87.30.