Better than expected trade numbers did not help the U.S. dollar this morning, which is trading lower against all of the major currencies. While the U.S. trade deficit basically held steady in the month of June, widening only marginally to -$42.0B from -41.9B, the increase was marginal compared to $44.0B forecast and the deficit in June was revised lower. Unfortunately this was still the first increase in four months and the upside surprise was caused by a 1.0 percent drop in exports and a 0.8 percent drop in imports. This tells us that internal and external demand is weakening which doesn’t paint a healthy outlook for the U.S. economy. Up North, Canada had a similar problem. The country’s trade deficit also widened but more substantially – in July, the deficit rose to -2.34B from -1.93B. Given the healthy IVEY PMI figures, economists had been looking for an improvement but a decline in energy exports led to a drop in both export and import volumes. Housing starts on the other than rose more than expected as the country’s real estate sector continues to improve. Trade numbers are not exceptionally market moving for currencies but on a quiet day like today, figures from the U.K., U.S. and Canada could leave a small mark on the forex market.

Meanwhile the euro and risk appetite received a bid after the German Constitutional Court confirmed that the appeal by MP Gauweiler won’t delay their verdict tomorrow. They expect to move forward with their ruling on Europe’s rescue fund and as we wrote in our Monday note, we don’t expect politics to stand in the way of gains in the euro. The political and economic consequences of blocking the European Stability Mechanism are just too severe for the 8 scarlet robed justices of Germany’s top court to say no. While there is a chance that they could impose terms that may include greater involvement by the Parliament, this is a decision that is more likely to come with their vote on the Constitutionality of the ESM at the end of the year. Tomorrow’s vote is simply on an injunction filed to block the court from ratifying the ESM.

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