Today's Market Update

London Session

Range trading has defined the European morning today. EUR/USD pushed above the 1.4300 level in Asian hours, however, the gains were reversed and a narrow 1.4255 to 1.4285 range has ensued. The JPY is moderately higher across the board on the back of speculation that Japanese investors will repatriate earnings from US treasury redemptions and coupon payments. However, the JPY is now trading off its best levels vs the USD, the EUR and the GBP. While the AUD was hit overnight by news stemming from China, some of these losses have been reversed during European hours.
Most Asian stock indices pushed higher overnight. By contrast, the Shanghai composite lost 3% as existing concerns about a tightening of credit and potential falls in exports were exacerbated by comments from the Ministry of Industry that will be a three year moratorium on approvals on expansion in steel and iron industries. The news hits the AUD. Australia's industrial commodity based exports to China have been instrumental in allowing its economy to avoid technical recession this year. However, the bear move in the AUD was short lived as fresh comfort was drawn from comments from RBA Governor Stevens that the budget deficit will be smaller that the government forecast in May. AUD/USD bounced off a low just below 0.8400 and is presently little changed from last night's close.
The pound fell sharply early in the London session vs both the USD and the EUR, though the supply was not triggered by UK economic data. There was no tier 1 data released this morning although a report of a 14% y/y rise in house repossessions during Q2 is a reminder of the vulnerable position of the UK economy. Sterling subsequently recouped most of its earlier losses.
The release of Eurozone July CPI at -0.7% y/y was weaker than expected. While in recessionary condition the absence of any inflation pressures may cause alarm, the fact that both Germany and France unexpectedly returned to growth in Q2 underpins the ECB's predications that the negative price pressures will be temporary. The CPI data did not impact the market.
This afternoon, US Jul CPI, Jul Industrial production and Aug preliminary University of Michigan consumer confidence are due. Canadian Jun manufacturing sales are also scheduled for release.