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Trading the Euro as the Real Stress Tests Come Out

Euro coins
AP
Euro coins

The European bank stress tests were reassuring - if you trust the results. Here's how to trade the real news.

Only eight of 90 European banks tested for their soundness were found wanting, according to regulators' analysis. But really, so what?

"There's not a lot of stress in the stress tests," says Amelia Bourdeau, director of foreign exchange at Westpac Institutional Bank. She expects further analysis by analysts and rating agencies to paint a far grimmer picture in the coming week, she told CNBC's Melissa Lee.

Andrew Busch, global currency and public policy strategist for BMO Capital, is equally skeptical of the stress tests.

"If you look at their criteria, it's kind of a joke," he says, noting that regulators used data from the end of 2010 in their analysis. "In March, S&P came out and did their own stress test, and 25% of their banks failed," he adds. The latest tests, he says, are a "total joke, total waste of time, and I think over the next 48 hours we're going to see some bad numbers come out."

Given that prospect, combined with the headline risk from an upcoming European Union leaders' meeting on the sovereign debt crisis, Busch recommends selling the euro against the dollar. He would sell at $1.4225 with a target of $1.3775 and a stop loss of $1.4375.

Bourdeau agrees. "I'm always a seller of the euro on rallies," she says.

You can watch the whole discussion right here.

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