Risk appetite returned to curreny markets, helping to boost commodity currencies, as a plan for supporting the banking system helped overshadow a poor Chinese trade report…

Overnight Developments:

• Chinese trade balance larger than expected ($31.7bn), but on weaker imports and exports.
• Exports rose 11.3 per cent from a year earlier, down from May’s 15.3 per cent pace. Imports increased 6.3 per cent from a year earlier, half of May’s 12.7 per cent and well below expectations.
• Accentuates the slowdown in global economy and concern about global growth outlook.
• But, markets latched onto positives which was an agreement by EZ finance ministers to f.
• A deal expected to see the first €30bn in aid for Spain’s banking system sent to Spain by the end of the month.

Movement on Spain Bailout:

• The final memorandum sealing the deal will not be officially agreed until July 20, senior eurozone officials said it will include further in-depth stress tests for 14 of Spain’s largest financial institutions followed by a requirement that Madrid segregate the banks’ distressed assets into a “bad bank”.
• Initially the funds will go through Spain’s gov’t (adding to its debt load), but once the single regulator is set up it will go directly to troubled banks.
• End result is an easing in Spanish yields.
• Ireland likely to get similar treatment, which could wipe off  €64bn from its debt load that it used to bailout its banks.

Macro Data from UK/EZ:

• Positive data from UK in the form of stronger than expected (by a wide margin) industrial and manufacturing production figures..
• IP was up 1.0% vs forecast of -0.1%.
• Manufacturing production rose 1.2%.
• At the same time, trade balance in goods came in narrower than forecast at -8.4B, vs forecast of -9.0B.
• A bit of hope for the UK economy after weak data last week (PMI’s).
• French May industrial output -1.9% m/m, weaker than Reuter’s median forecast of -0.9%
• Italian May industrial output +0.8% m/m, stronger than Reuter’s median forecast of -0.2%

Fed Doves Make Case for Easing:

• “We are right at that edge, that if economic data keep coming in below our expectations — and our view is we are not making progress on our mandates, or we don’t expect to make progress on our mandates — then I think we would need more accommodation,” San Francisco Fed President John Williams told reporters after a speech in the resort area of Coeur D’Alene, Idaho.
• Williams is a voting member of FOMC.
• “Additional monetary accommodation is needed to more quickly boost output to its full potential level,” Chicago Federal Reserve Bank President Charles Evans told the Sasin Bangkok Forum. “The economic circumstances warrant extremely strong accommodation.“
• Addressing the same forum, the president of the Boston Federal Reserve, Eric Rosengren, backed that view, saying he saw slower growth and higher unemployment than most of his colleagues. “So far data has been coming in weak and I gave a weak forecast myself,” he told reporters after his speech. “I think it’s appropriate to have more quantitative easing.“
• Evans and Rosengren are not voting members, but will be in 2013.

Nick Nasad is a macro economist, market analyst, and educator; and one of the main contributors to FXTimes.com – provider of  News, Analysis, Education, Videos, Charts, and other trading resources.

Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.