The U.S. dollar was softer Wednesday vs. the majors, gaining only against EUR and SEK as markets search for direction ahead of Friday's stress test results.

The euro is trading softly after making a marginal new high for the cycle vs. the dollar at 1.3029 Monday; a break of the 1.27 area would signal a move back to the July 13 low around 1.25. The euro is perhaps being pressured by less favorable leaks of bank stress tests, which are feeding into market concerns that the tests will not be as rigorous as hoped for.

The yen was firmer across the board, suggesting risk aversion is back in play Wednesday, while the Swiss franc was mostly firmer. Emerging markets forex was mostly softer, with Eastern European currencies faring poorly Wednesday. Biggest gainers on the day so far vs. USD are JPY, CAD, ZAR, INR, and NOK, while biggest losers vs. USD so far are CZK, EUR, PLN, RON, and HUF. China concerns continue, leading markets to pare back yuan appreciation views to the lowest since early June, while Brazil is expected to hike rates by 75 basis points Wednesday.

Asian markets were mostly higher as the MSCI Asia index rose almost 1% Wednesday. Hong Kong outperformed, while Japan, Taiwan, and Singapore underperformed and were down on the day. European markets were higher Wednesday, with Euro Stoxx 50 up over 1%. Futures markets were pointing to a higher open for U.S. equity markets Wednesday.

The U.S. bond market is likely to continue benefiting from safe-haven flows as well as concerns about weak U.S. growth. The Japan bond market was flat, while European bond markets were mostly lower as 10-year yields in U.K., France, and Germany were down 2 basis points, up 1 basis points, and up 1 basis points, respectively.
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