The euro received a nice boost yesterday on the back of some positive euro zone economic data which indicated that manufacturing growth exceeded expectations for July, while consumer confidence also improved, indicating a more positive growth outlook in Europe.

Contrast this with some disappointing US jobless data which came in worse than expected at 464k, against an expectation of 445k, pretty much bearing out Bernanke’s downbeat comments about employment on Wednesday, as well as existing home sales for June which sank by 5.1%.

The single currency was able to shake off the news that Hungary appears to be fed up with austerity, and wants to row back on a commitment to cut their budget deficit back to more sustainable levels by next year.

Today we will see if this boost can be sustained with the long awaited release of the bank stress test data for European banks after European markets have closed. The expectation is that the larger banks should pass today’s stress tests without too many problems, however it is how Europe plans to deal with the small banks that don’t pass that will be key.

There have already been a number of leaks about who has and hasn’t passed these tests this week that a few more leaks today probably won’t make much difference. As it is both Spain’s finance minister Salgado and France’s finance minister Lagarde are claiming that all their banks have passed the tests, which hardly seems credible given the problems in Spain with the regional cajas.

Here in the UK we have the small matter of the first release of Q2 GDP figures which after yesterdays better than expected retail sales figures for June, which came in at 0.7%, has boosted expectations of a better figure for GDP. The expectation is for a rise of 0.5%, from 0.3% last quarter. Anything below 0.5% could well provoke some sterling weakness given how positive recent economic data has been as expectations have been raised for a figure of 0.6% or higher.

EURUSD – positive economic data out of Europe saw the single currency bounce off its lows at 1.2735 yesterday and subsequently break back above the 1.2850 area to peak at 1.2930, some way short of this week’s highs above the 1.3000 level.

For the move to the 1.3125 level to happen we need to consolidate above the 1.2840/50 area and push through the highs this week at 1.3030/40. Back below 1.2840/50 re-targets the week’s lows at 1.2730/40.

GBPUSD – the trend line support levels, around 1.5150/60, from the June lows at 1.4350 needs to hold to maintain the momentum of the recent gains and have so far. However, the momentum of each rally appears to be slowly fading casting doubt on the likelihood of a move back towards 1.5500. A break below 1.5150/60 potentially opens up 1.4980, while we would need the cable to hold above Wednesday’s highs at 1.5335 to stabilise and re-target last week’s highs.

EURGBP – the euro continues to defy gravity here breaking above the 0.8440 level to hit 0.8465 on an intraday basis. The single currency now needs to hold above the 0.8430/40 area to re-target this weeks highs around the 0.8520/30 level and then push on towards the 0.8610 50% retracement level. A close below 0.8400 is needed to re-target the 0.8320/30 level.

USDJPY – the dollar still appears to be pinging around in a broad range play here, between the range lows around 86.25 and the recent highs just above 87.50. However the likelihood remains of a test towards last year’s yen lows at 84.80 while the 88.00/10 resistance area caps the market despite concern about possible Bank of Japan intervention. A break of 84.80 would look to target the 1995 lows below 80.00.