EURUSD was able to shake off yesterday's Moody downgrade of Ireland and the speculation that a German Bank would fail the stress test to rally to 1.3028. The Hungarian decision to halt talks with the IMF/EU remains risk negative but was not able to weigh on the Euro. While none of the events are on-their-own monumental or unexpected for the Euro, we still believe that the there is a growing fundamental argument that the recent EUR run is losing momentum and should reverse in the near-term.

The key catalyst should be the inadequacy of the bank stress test due to be released Friday. We doubt that this report will provide the clarity investors need and participants will potentially find significant flaws in the methodology. Even with EU officials throwing a few well-publicized sick banks under-the-bus such as German lender Hypo Real Estate Holding AG, we suspect the market will remain nervous.

The path to the next resistance at 1.3093 looks heavily congested which should provide the barrier we are looking for.

In Australia the published RBA minutes were slightly less hawkish than the markets had anticipating prompting traders to cut their long AUDUSD spec positions. The language was broadly in line with the policy statement released two weeks ago but highlighted two core issues that is on the market's mind.

The RBA stated that the critical medium-term question was the extent to which economies in Asia could continue to grow strongly in the face of what could be an extended period of subdued conditions in the major North Atlantic economies and discussing the EU stress test stated it's critical that the stress tests be regarded as credible and that plans be in place to deal with any capital shortfalls identified. Questions we too would like to see addressed and convincingly answered. Given the overall tone we suspect that the RBA will opt to pause in August but will raise rates another 25 basis points in September.

As for the AUD prospects, clearly there has been little decoupling from risk which will be the key determinate for the currency's movement.

Today, markets are expecting that the Bank of Canada will continue to tighten monetary policy when they meet on Tuesday, with the median forecast for a hike of 25 bps to 0.75%. After holding interests rates at 0.25% for over a year, the central bank finally submitted to restarting monetary tightening at the last meeting and since then data from Canada has been rather encouraging, including a surprisingly strong June employment report (+93.2K) that has brought the unemployment rate back below 8% to 7.9%. There is still a small probability that the BoC might choose to wait on raising rates till after the EU banks stress tests, however we now believe this is a long shot. A lack of scheduled economic data and events will place the short term focus on GS and BONY earning releases. Forex-Chart

Today's Key Issues (time in GMT): 06:00 EUR GER PPI 06:15 CHF Trade 08:00 EUR ITA Ind orders 08:00 EUR ITA Ind sales 08:30 GBP Money supply 08:30 GBP PS new brwing 08:30 GBP PSNCR 09:00 EUR ITA Trade non-EU 10:00 GBP CBI orders -23 exp 12:30 USD Housing starts, thous saar Jun 580 exp, 593 prior 12:30 USD Building permits, thous saar 570 exp, 574 prior 13:30 CAD Interest rate announcement, % .75 exp vs. 50 prior 14:00 USD Fed Governor Tarullo (FOMC voter) testifies on financial regulation