Euro Breathes on Spanish Belt Tightening, US/CA Trade Figs Next

Spanish PM announces EUR 65 bln in budget cuts ; German CPI as estimated; French budget deficit narrower; German auction. Focus turns to US and Canadian trade balance figures and later in the session to FOMC minutes. Ashraf reminds us that 1 year ago exactly today as Italian banks were damaging global markets, Italian 10-year yields were exactly where they are now today at 5.9%. . 2 LTROs and 1 Italian government later no change in yields. But EURUSD is 13% lower from where it was on Jul 12, 2011. Central banks can do the trick with yields, but no longer efficient in FX. More on those Premium Insights below.

The greenback is weaker across the board in the ongoing session. European equities are trading mixed within -0.4% and +0.15% and the relative strength winners are NZD and AUD.

Spanish 10 year yield declined to 6.69% after Spanish PM Rajoy announced new spending cuts and taxes (VAT will increase from 18% to 21% next month) aimed at narrowing the budget deficit by EUR 65 bln by 2014. The announcement comes one day after the EU agreed to give Spain one extra year, till 2014, to bring its deficit to 3% of GDP.

The news of the Spanish austerity comes on the same day as the ILO warns that 4.5 mn jobs could be in jeopardy in the EU if austerity measures were not complimented by labor market reforms.

European data calendar was limited to German June CPI that was confirmed at -0.1% m/m and at 2.0% y/y in line with initial estimates and French current account deficit that narrowed to EUR 4.1 bln in May from previous EUR 4.4 bln.

German 10 year bond auction resulted in a record low yield 1.31% from previous 1.52% while cover improved to 1.5 from 1.4. EUR 4.15 bln was allotted.

The US session starts at 8:30 am ET with trade deficit that is expected to narrow to USD 48.5 bln in May from April's USD 50.1 bln followed by wholesale inventories at 10:00 am that are seen at 0.4% from previous 0.6%.

The FED will release the FOMC minutes from the June 19-20 meeting at 2:00 pm. The commission decided to extend the Operation Twist to the end of the year so market participants will look for hints of the possibility of further QE after the Operation Twist is completed. Considering the disappointing manufacturing and NFP reports, the minutes could be perceived a bit outdated.

Canadian data is limited to May trade deficit at 8:30 am ET that is expected to widen marginally to CAD -0.5 bln from previous CAD -0.4 bln.

1 of 2 EURJPY shorts hit all targets, both AUDUSD shorts were stopped out as did GBPUSD. Gold short hit all targets. USDJPY and EURUSD remain in progress. Click here for direct access http://ashraflaidi.com/products/sub01/access/?a=664