Euro Stages Slight Recovery

Talking Points<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

·          BSI data shows deterioration in Manufacturing sentiment   

·          NK crisis still unresolved

·          French spending improves

·          US calendar empty again

EUR/USD staged a slight recovery in Asian and early European trade today retaking the 1.2600 figure as traders bid the unit ahead of ECB President Trichets testimony to EU Parliament. Mr. Trichets remarks however, offered little new information as he focused on price stability and the need for further economic reform within member nations studiously avoiding any hints of possible future monetary policy actions. The pair also received a boost from better than expected French Consumer Spending numbers which increased 5.6% from 4.9% expected. Overall however, euros strength was more a function of profit taking  from dollar longs after yesterdays relatively soft <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />US housing data. Although Housing starts rebounded from a 13 month low, building permits declined and with US rates expected to climb higher after the much anticipated Fed rate hike in June, housing is likely to become an ever stronger drag on the US economy.   <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Euros true gains today were on the crosses rather than against the greenback. The single currency climbed to 144.85 from 144.44 against the yen and rose to .6842 from .6825 versus the pound as both counter currencies experienced some setbacks. In Japan, the BSI Large Manufactures survey printed far lower than expected, at 1.8 for the second quarter, compared to expectations of a 7.0 reading.  High oil prices, a higher Yen, and a recent sell-off in the Tokyo stock market depressed businesses sentiment casting doubt on any improvement in the far more important TANKAN survey due July 3^rd. 

In UK, the pound was hobbled by news that David Walton was the sole MPC member to cast a vote for a rate hike. With traders expecting BOE to keep rates unchanged for 11^th consecutive month at BoEs July meeting, the differential in interest rate expectations between the tightening ECB and the neutral BOE is beginning to reflect itself in the EUR/GBP rate which may climb even higher should this dynamic continue.     

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