* Euro rallies in aftermath of bank stress tests
* Euro investors become more bullish as day progresses
* U.S. new home sales data for June a positive
(Updates prices, adds details)
NEW YORK, July 26 (Reuters) - The euro rallied to $1.30 on
Monday as relief over European bank stress tests and stronger
economic data on both sides of the Atlantic gave investors less
reason to be risk averse.
Worries the tests weren't strict enough still have some
investors hesitant to make big bets on the single currency
though as the trading day progressed, those investors were
fewer in number as they were more concerned about missing an
uptrend of several days.
Positive economic data in Europe has also helped lift the
single currency recently.
The dollar was lower against the yen, though earlier it had
pared some of those losses after a government report showed
better than expected new home sales in June. For details, see
[]
"Despite the market's single-minded focus on the stress
tests the more important story was the surprisingly strong
economic data from the region (last week)," said Boris
Schlossberg, a director for currency research at GFT in New
York.
In mid-afternoon New York trade, the euro rose as high as
$1.3004 on electronic trading platform EBS <EUR=EBS> and
$1.3003 on Reuters data <EUR=>.
The currency last traded up 0.7 percent at $1.2999.
Price action looked as if an options barrier was being
defended at $1.3000, though analysts said they doubted a
barrier existed given trades had breached that level on both
July 16th and July 20th. The level may be a psychological barrier, however, as the euro has not closed above $1.3000
since early May.
Fear of a euro-zone debt crisis and its impact on European
banks drove the euro below $1.19 last month, its lowest level
since 2006, but it began a swift recovery in July.
That was partly driven by data showing the euro zone
economy has been holding up better than anticipated, even as
governments tighten their belts to rein in large deficits. The
stress tests results, which showed only seven of 91 banks
failed, helped drive the euro further. For more on the tests
see []
PUSH TOWARD $1.31
Technical analysts said the euro may still push toward
$1.3125, the 38.2 percent retracement of the December-to-June
move. It reached $1.3028 last week, according to Reuters data.
Any fall in the euro was also seen limited while it
remained above support at $1.2870 -- its 100-day moving average
-- and last week's low around $1.2730, leaving it hemmed in
within a range.
Some said the euro's gains could also be constrained by
this week's redemption of maturing euro zone bonds and coupon
payments worth some 45 billion euros, according to Citi
estimates. []
"The stress tests failed to inspire much of a euro/dollar
rally, but at the same time there is no reason for bears to
start selling the euro aggressively either," said Roberto
Mialich, currency strategist at Unicredit in Milan.
The euro rose to its highest since early June against the
yen on electronic trading platform EBS <EURJPY=EBS> as dealers
unwound long yen positions, but then ran into offers from
Japanese exporters around 113.30/50 yen. It was last up 0.2
percent at 113.11 yen.
The dollar was 0.6 percent lower at 86.90 yen <JPY=>, off
the session low of 86.83 yen hit before the release of the
housing data.
Analysts said Monday's new home sales report was a "good
surprise" after a string of lackluster data, but more evidence
was needed to reassure investors the economic recovery in the
United States was still on track.
"The data was pretty surprising, especially considering how
poor the numbers were last month. But the jury really is still
out," said John Doyle, senior currency strategist at Tempus
Consulting in Washington.
"Unless you see a continued pattern of positive numbers, I
think traders are going to be skeptical," he added. "That's why
the dollar reaction has been pretty muted."
The Australian dollar rose to its highest since May 11
against the U.S. dollar <AUD=>, as the spread between two-year
Australian and U.S. yields rose to around a two-year high. The
gains on Monday pushed the Aussie above the 200-day simple
moving average for a second straight day.
(Reporting by Nick Olivari and Vivianne Rodrigues; additional
reporting by Steven C. Johnson in New York and Jessica Mortimer
in London; Editing by Padraic Cassidy)
