The U.S. dollar is trading lower against all of the major currencies this morning ahead of the FOMC minutes and a narrower U.S. trade balance provided little support for the greenback. In the month of May, the U.S. trade deficit shrank from -$50.1B to -$48.7B on a drop in imports and rise in exports. Imports fell 0.7 percent to its lowest level since February due to lower demand for crude oil and clothing. Exports rose 0.2 percent on higher demand for food and capital equipment. The recent decline in the euro pushed the U.S.’ trade gap with the EU to its largest level since July 2008. Up North Canada’s trade deficit grew to -0.79B from -0.62B and once again oil played a large role with energy exports declining and imports rising 0.4 percent to its highest level ever.

The main focus today is the FOMC minutes. The last time the Federal Reserve met, they extended Operation Twist, cut their economic projections and admitted they were overly optimistic. Today we will be looking to see if this pessimism was broadly shared or only the sentiment of a few FOMC members – the greater the consensus, the greater the pressure on the U.S. dollar. The June meeting was also the first for new Federal Reserve Governors Jeremy Stein and Jerome Powell which means we will be watching closely to see how they voted last month. If Stein and Powell favored more action by the Fed or if they contributed to the downward revisions to the central bank’s economic projections, the market will price in a greater chance of QE3 and that would be dollar bearish. However with most investors anticipating dovish comments, if the Fed sounds even the slight bit wishy-washy about QE3, the dollar could be squeezed higher.

Meanwhile with Spanish yields extending lower, European equities and the euro are holding steady. This is a disappointment because Spain announced fresh plans to cut its budget deficit by EUR65 billion which should have been positive for the euro because it reduces the risk of a sovereign bailout and puts the country closer to receiving the money that it needs to save its banking sector. Of course, all the austerity will only prolong the recession in Spain especially since the government plans to raise the value added tax by 3 percentage points from 18 to 21 percent.