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GBP:  The GDP revisions today will be watched for potential revisions, but risks are small in our view. Update: GDP confirmed at +0.3% in the second estimate.

USD: The weekly claims data has been more volatile of late and the dollar has proven to be more sensitive to the data as a result. Market looks for modest fall to 345k from last week’s 360k reading.

EUR: The single currency will be sensitive to further signs of slowdown in the initial readings on PMI data for both services and manufacturing for the Eurozone. Euro has held up relatively well considering the other moves in the past 24 hours, but weak PMIs could well change this.

Idea of the Day

The past 24 hours have reflected the two primary concerns that dominate FX and other asset markets. When will the US Fed start scaling back monthly asset purchases and just how much will China slowdown.

On the first point, the initial weaker dollar reaction was soon reversed after the Fed Chairman’s initial comments.   In summary, there remains a lot of uncertainty regarding and the Fed Chairman still said (as before) that scaling back could start in the next few meetings.

Meanwhile, the softer HSBC manufacturing data released overnight in part contributed to the 7.3% slump in the Nikkei.   The yen gained and the Aussie was further battered as a result. The message is markets have to remind themselves that in many ways they are living on borrowed time and the Fed is doing their level best to prepare them for the fact that they cannot continue to buy USD 85bln of assets a month forever. We could well be headed for a much more volatile summer.

Latest FX News

JPY:  Nikkei move and China data were the catalysts to the sharp downmove on USDJPY. Trendline support at 101.77.   The correlation between dollar yen and the Nikkei has declined substantially during the month, so the yen has become less sensitive to moves on the stock market. If it were not for this, we could have been looking at 100 on dollar yen this morning.

USD:  A choppy dollar reaction to Bernanke’s testimony yesterday, with the initial weakness finding buying and the move continues in the early part of the Asia session. DXY index currently 0.5% higher. Bernanke warned of risks from removing QE too early, but retained view that QE could be scaled back in next few meetings.   Minutes to the latest FOMC meeting served to add to the firmer dollar tone.

AUD: The most volatile of the majors in the wake of Bernanke’s comments, trading more than a 1% range in the first half an hour after the initial statement. Volatility continued overnight, with AUDUSD near to 2012 low of 0.9582.