• SNB’s Roth does not want further CHF appreciation because wants to avoid deflation. To stick to its policy “decidedly” SNB does not give fx target – newspaper interview
  • IMF in talks with at least 10 Eastern European countries about emergency aid/loans. Countries applying for aid/loans for first time, Bulgaria, Croatia, Macedonia – Handelsblatt
  • Bulgaria denies in aid talks with IMF
  • German June wholesale prices +0.9% m/m, -8.8% y/y
  • German FinMin Steinbrueck: Initial signs that the slump has bottomed out
  • French May industry output +2.6% m/m, better than median forecast of flat
  • French May c/a deficit -2.2 bln euros vs revised -3.5 bln in April – Bk of France
  • French budget deficit -88.7 bln euros at end May vs -50.1 bln a year ago – Budget Min
  • China June trade surplus $8.15 bln, way below median forecast of $15.0 bln – Xinhua
  • China imports, exports fall in June from year ago, but at slower pace. Imports -13.2% y/y (vs median forecast -20%), exports -21.4% (vs median forecast -20.9%) – Xinhua
  • Italy May industry output s.a flat m/m versus median forecast of -0.6%
  • UK June PPI output prices -0.2% m/m, -1.2% y/y vs median forecasts +0.3% ,-0.8% respectively. Weakest annual rate since Dec 2001. PPI input prices +1.5% m/m, -11.0% y/y vs median forecasts +0.8%, -12.2% y/y. Weakest annual rate since April 1997
  • China’s recovery not yet on solid footing – Wen

JPY and USD have seen strength this morning, underpinned by raised risk aversion.

An article in the Handelblatt has raised concerns over the health of Eastern Europe. The paper reports that the IMF is discussing aid programmes with at least 10 Eastern European countries at the present time, including Bulgaria, Croatia and Macedonia for the first time. Bulgaria reacted by coming out refuting the report.

The release of weaker than expected Chinese June trade data has also weighed, with exports falling a hefty -21.4% y/y. Hardly bodes well for robust economic recovery.

EUR/USD started off around 1.3980 and fell early as news of the Handelsblatt article did the rounds. Stops below 1.3940 were eventually triggered bringing about a fairly sharp decline to around 1.3900. There were reports of decent buy orders down at 1.3900 and indeed the level held up for some considerable time.

Eventually however the line was breached and stops triggered taking us down to a session low 1.3879. Sources reported buy orders down at 80 and they proved to be of decent size and we subsequently rebounded to 1.3910 at writing. Middle Eastern names were reported strong buyers at the lows.

Cable suffered against the backdrop of heightened risk aversion. Stops around 1.6320 were triggereded early and that set the tone for the whole session. Selling pressure in the EUR/GBP cross provided support for a time, but that eventually wasn’t enough to hold the tide of selling pressure. Large stops were triggered on a breach of 1.6250 accelerating the sell off to a session low 1.6183 before steadying. We’re presently at 1.6210.

USD/JPY tripped lower, the JPY bolstered by the heightened risk aversion, strong EUR/JPY selling in wake of Handelsblatt report and the poor toshin-related demand overnight, with the investment vehicles being less than 10% subscribed.

USD/JPY having started off around 92.95, fell to a session low 92.49. Sources report good demand though at 92.40/60 and that has so far soaked up selling pressure.

Swissy has been big loser this morning, and this despite heightened risk aversion. EUR/CHF is up at 1.5165 from early 1.5125. The move comes with SNB’S Roth underlining the bank’s absolute determination to arrest any franc strength. Talk of stops up at 1.5180/85.