The Euro erased all of its New York gains today as continued fears of the fiscal stability of Spain played on the minds of traders as the short covering moves ran out of steam here in Asia. The return of China from a three day holiday attributed to the Dragon Boat festival failed to inspire the markets as moves were sluggish and ranges remained tight. Despite this, the overall tone remained risk adverse, with investor focus now squarely on the European bank stress tests that may or may not be made public once completed in a week or two.

The EUR/USD pared its earlier gains in NY as the pair shed 55 pips to touch lows of 1.2255, just a hair off of the starting price for the gains that sent the pair to 1.2335 over 12 hours ago. Support looked firm in the 1.2255/60 area ahead of the commencement of the London session. Yen crosses softened as the yen was clearly in favor today, making gains against the majority of its trading partners as caution emanated throughout the session and equities hovered near flat. GBP/JPY dropped under the 134.00 handle, and the EUR/JPY spent the good part of the day under the 112.00 level. USD/JPY once again remained prisoner of the cross moves, chained in a 91.40 to 91.20 range after more profound moves in US trading hours.

The AUD/USD was vulnerable as commodities continued to slip due to a clouded global growth outlook. AUD/USD dropped from 0.8640 to 0.8580 on the day as AUD/NZD scampered along 1.2330 lows with continued concerns of the Australian mining tax looming. Earlier comments out of the UK kept the GBP/USD weakened as it trudged along the bottom of the range at1.4690 for the latter part of the day.

Traders will keep an eye on a Spanish bond auction later in the session to see if yields increase due to panic over the upcoming stress tests. As well, the SNB will announce the Libor rate later which is expected to remain unfettered at 0.25%. Retail Sales out of the UK wraps up the London session to be followed by CPI and unemployment claims out of the US.