By William L. Watts, MarketWatch
LONDON (MarketWatch) -- So that's what a damp squib sounds like.
A squib is a small explosive used in a variety of settings, including theatrical and movie pyrotechnics. A damp squib is a dud, a device that fails to ignite. It's also a popular market term used to describe an eagerly awaited event or report that fails to produce much reaction
It's also an apt description of the European bank stress tests and their impact on foreign exchange.
Euro bulls looking for the stress tests to clear away concerns over bank balance sheets and, in turn, send the euro soaring, were left disappointed.
Bears who thought the tests' lack of rigor would put the euro back on track for a test of parity with the U.S. dollar were left in the same boat.
The euro barely budged. On Tuesday, it appeared ready to attempt a meaningful run to new highs above the $1.30 level but again stalled out.
Instead, it's largely holding the recent range established in the wake of what was indeed a strong rebound from a four-year low below $1.19 at the end of June.
Steven Barrow, currency strategist at Standard Bank, says traders who expected the stress tests to influence the euro by providing clarity over the sovereign debt crisis were barking up the wrong tree.
That's because the debt crisis is just a fading memory for the market at this point.
"The market has become bored of the euro -zone debt/bank saga and has become insensitive to it," Barrow said in a research note.
After all, currency markets struggle to hold onto a driving theme for any extended period, and the sovereign debt crisis has been such a driving force since late last year, he said.
That's not to say the crisis has gone away. While there has been some easing in the yield premium investors demand to hold peripheral euro-zone debt over German bunds, spreads remain elevated. The cost of insuring debt issued by the governments at the heart of the crisis is similarly off highs but still significantly elevated.
But successful auctions, particularly by Spain, have helped ease worries that another country would soon find itself, like Greece, shut out of the world's credit markets.
And then there are renewed worries about the U.S. economy and persistent ideas the U.S. Federal Reserve may at some point weigh renewed quantitative-easing measures in the event of a double dip.
That's part of the reason the euro was able to rebound and then to hold its own in recent weeks.
More William Watts's Forex Files
| Aug. 20, 2010 | Risk-driven trade to stay around | |
| July 16, 2010 | Swiss strength shows intervention futility |
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