Beginning today in Europe, the ECB released its financial stability report yesterday which cited that further contagion could cause as much as an additional €195 bn in European bank write-downs. Additionally, the ECB revealed that its sovereign bond purchasing program will be expanded to €35 bn, from the €26.5 bn figure it announced last week. This information onto itself should weigh heavily on the Euro today. In Germany, Federal President Heinz Koehler resigned yesterday evening, effective immediately. The resignation was due to the political flak he received over a comment questioning the motivations of the German government for maintaining forces in Afghanistan. The comment and the resignation will only add to the torrents of pressure Merkel is facing over Germany's mishandling of the economic crisis and likely further undermine support for the conservative-liberal government. In Asia, China's semi-official May PMI numbers fell to 53.9 with economists widely anticipating a 54.5 figure, both down from a 55.7 in April. Despite the lower-than-expected news release, China still has had 15 straight months of manufacturing expansion, a healthy sign for any export-driven nation. In Australia, the Reserve Bank of Australia (RBA) left the official cash rate at 4.50% as we had predicted. This was only the second time since October '09 that the RBA had opted to the leave the cash rate unchanged following a official meeting. Otherwise, European and US markets will finally have a free day to price in recent, non-correlated events such as Spain's credit downgrade and geopolitical events in the Middle East. As a result, there's a good chance risky assets will again face selling pressure today. Today is the BoC rate decisions. Given the strong recovery in Canadian fundamentals, the prevailing dovishness from the BoC had been a cause of some frustration and bewilderment in recent months, but last month's meeting did give CAD bulls some tantalizing bait. Recall that in the previous statement accompanying the on-hold decision, the central bank chose to drop its conditional commitment to low rates until the end of June - an omission that has now prompted consensus predictions to be for a hike of 25bps to 0.50% this time around. We do like CAD as one of the most likely currencies to perform robustly in the remainder of the year, but with a hike already priced in for tomorrow, there is clearly some scope for disappointment. As with many risk trades (and particularly as a commodity currency), there are big caveats for the CAD outlook should the economic problems dogging Europe and fragile global recovery deteriorate once more, and given the BoC's penchant for being cautious coming out of this recession, expect significant CAD selling should they keep rates on hold and adopt the wait-and-see strategy. Just given the number and diversity of events unfolding globally we suspect that FX traders will have their hands full today.

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