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This Thursday  shall serve as the calm between the storms following yesterday’s FOMC meeting and Q2 US GDP print and  tomorrow’s  July non-farm payrolls report. The US dollar remains strong following an initial report that the second quarter expanded at an annualized rate of 4.0% versus a 3.0% expectation. This was well received by the market following a first quarter that has since be revised to a contraction of -2.1%. Janet Yellen and company really said nothing at the most recent Federal Reserve meeting, reducing QE purchases by $10B as expected and not changing their tone on the rate outlook. USD/JPY was the biggest mover in the afternoon session, approaching levels not seen since early May.

Overnight it was rather quiet, with mostly second tier data out of Asia and Europe. Japanese construction orders and housing starts missed expectations, which continues a string of poor Japanese data. The European Union reported core inflation for the month of July, which came in on line at +0.8%. For now, most movements in EUR/USD have been US centric with nothing on the calendar for the continent until  next Thursday’s  ECB meeting and press conference. The European Central Bank has been quiet since May’s meeting when they enacted new liquidity measures and promised action to combat a strengthening euro. Since that time, the euro has dropped 5% against the US dollar.
Looking to South America for a change, there is news in Argentina that could send markets into a mini-tailspin should the situation continue to dissolve. The government is attempting last minute talks to avoid default on $539 million in payments to bondholders after a U.S. judge ruled that the money couldn’t be distributed unless a group of hedge funds holding defaulted debt also got paid. While Standard & Poor’s has declared Argentina to be in default, it would appear world markets are holding out hope for a last second agreement. Global equity indices are mixed, weighing this news against geopolitical situations in Eastern Europe and the Mid-East and the on-going corporate earnings season in the US.
This morning, the US reported weekly jobless claims, which came in around expectations at +302k. Canada also reported GDP for the month of May, which came in as expected at +2.3%. USD/CAD continues to trade higher today, approaching levels not seen since early June. The market’s attention today will no doubt be paid to the situation in Argentina and the on-going corporate earnings season. Should things remain calm today, I would suspect that we see a little rebound in the US dollar across the board as it has taken big strides in the last few days against most G10 currencies. If we see the situation in Argentina boil over it could continue to boost the dollar (and yen and Swiss franc) as investors pile into safe haven currencies. One last thing to note as we close out the week is tonight’s HSBC Manufacturing PMI number in China. This is looking to remain in expansionary territory above 50 amid reports the IMF is set to lower 2015 GDP expectations of 6.5-7.0% for the world’s second largest economy.
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