Euro May Bounce as Finance Ministers Activate Spain Bank Bailout

Talking Points

• Eurozone FinMin Summit in Focus, Spain Bank Bailout to be Executed
• Chinese Inflation Hits 29-Month Low, Boosting Case for PBOC Cuts
• Japanese Current Account Surplus Shrinks, Machine Orders Plummet

All eyes are on the Eurozone finance ministers’ summit today. The sit-down is expected see officials begin implementation of June’s EU leaders’ summit framework. While little is likely to be achieved on longer-term issues like joint bank governance and expanded powers forthe EFSF/ESM bailout funds, the Spanish bank rescue is likely to figure prominently into the proceedings. Operational details of the effort are expected to be ratified at the sit-down and may produce a near-term bounce in the Euro as well as sentiment-linked currencies. France is also due to sell €7.8 billion in 91-, 168- and 350-day bills, with traders keeping an eye on average yield and bid-to-cover readings as a gauge of sovereign stress in the region.

Most major currencies consolidated in overnight trade, with the risk-geared Australian and New Zealand Dollars narrowly underperforming as Asian bourses fell in response to Friday’s disappointing US jobs report. China’s Consumer Price Index figures showed inflation slowed more than expected, printing at a 29-month low of 2.2 percent. The outcome hints policymakers in the world’s second-largest economy may have scope to ease monetary policy further after cutting rates last week. Japanese Machine Orders slumped 14.8 percent in May, marking the largest monthly in over a decade, while the Current Account surplus shrank to the smallest in six months.

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

To be added to Ilya's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com