Spain Goes for Weekend Bailout, EURUSD Back Below 1.25

Spain to request aid on Saturday, hours after Fitch latest downgrade of Spains long term debt, German trade balance rose, UK PPI input and output prices declined. US trade balance and Canadian labor market data is next. The latest on our Intermarket Insights is below.

USD trades higher across the board except JPY. European equities are losing nearly 1% and the relative strength winner is JPY while NZD is the weakest.

This weekend could provide some relief to Spain induced market tensions as Reuters reports that Spain is expected to request European aid for its ailing banks. A conference call to discuss the request should take place on Saturday and the announcement is expected Saturday afternoon. This news comes one day after Fitch downgraded Spanish credit rating to BBB from A with negative outlook. Spain is now only two notches above the junk level.

German trade balance was above expectations as it rose in April to EUR 16.1 bln from upwardly revised March's EUR 14 bln. Exports rose 3.4% while imports declined 1% y/y. On monthly basis, exports fell 1.7% while imports dropped 4.8% which puts the growth outlook in question. EURUSD trades around 1.2460.

PPI input prices in the UK rose in May by 0.1% from previous 1.0% on the back of sharpest monthly decline in crude oil since 12/2008. The output prices inflation eased to 2.8% from 3.2% y/y which is the lowest level since 11/2009. Consumer inflation expectations for the next 12 months rose in May to 3.7% from 3.5% much higher compared to Aprils 3% CPI and significantly above BOE 2% target. EURGBP is trading slightly lower around 0.8075.

US data is limited to trade deficit that is due at 8:30 am ET and is expected to narrow in April to USD 49.4 bln from previous 51.8 bln.

CAD traders will ignore housing starts that are due at 8:15 am and are seen lower in May at 226K from April's 245K as they will wait for 8:30 am when labor market data is due. The employment level is expected to rise only 10K after 58.2K growth seen a month earlier. The unemployment rate is seen steady at 7.3%. Trade surplus that is due at the same time is anticipated to decline in April to CAD 0.2 bln from previous CAD 0.4 bln.

EURUSD longs and oil longs were stopped out, while AUDUSD longs remain in progress. See rest of Insights here: http://ashraflaidi.com/products/sub01/access/?a=644