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The main focus over the weekend was the slew of Chinese data released late Sunday night.   Special attention was paid to the GDP numbers for the world’s second largest economy in Q2, especially after comments from the Finance Minister last week that suggested China was becoming increasingly tolerant of lower growth moving forward.

The comments from Lou Jiwiei where he stated China’s 7% goal “should not be considered the bottom line” led to a sharp sell-off in the AUD and NZD on Friday, however the official news agency has since corrected the article with the quote now reading that “there is no doubt China can achieve this year’s growth target of 7.5%.”

The attempt to defuse market jitters of a sharper slowdown in China helped risk appetite somewhat, with the Aussie and Kiwi retracing some of their recent weakness ahead of the Chinese data.The quarterly GDP reading came in bang on expectations of a 7.5% year-over-year reading, modestly slower than the 7.7% seen back in Q1.   Along with the GDP data, industrial output and fixed-asset investment for the month of June weakened from the previous month, missing the median analyst forecast.   Industrial production for China came in with a 8.9% increase from the previous month, the slowest reading since April 2009.

Counteracting the worse than expected industrial production, retail sales increased at a faster clip than forecast, printing at 13.3% and surpassing the 12.9% increase that had been expected.Although the numbers over the weekend increase concern that the Chinese growth target of 7.5% could be in jeopardy, investors are taking the “Goldilocks Data” in stride, with the AUDUSD popping higher after the initial release and equity futures turning positive.   Some of the bullish sentiment began to vanish as the European session progressed, as we did see the big dollar rally back somewhat and retrace its earlier losses against the Aussie prior to the retail sales release in the US; AUDUSD sunk back into the high-90s, while the upward trajectory of USDCAD struggled to overcome resistance in the low 1.04s.

Turning our attention to Europe, Spanish Prime Minister Mariano Rajoy is under renewed pressure to step down after new information in regards to his involvement in the ‘slush fund’ scandal has emerged.   The political turmoil has Spain’s regional equity index underperforming the majors, down 0.48% at the time of writing.   The EUR is also well offered against bid dollar midway through the European session, sliding back towards the 1.30 level.   Despite issues in the periphery, the collective sigh of relief after the Chinese GDP data came in as expected has helped the tape in Europe begin its week on positive footing when looking at the major bourses; this includes France’s CAC, currently up 0.50% and seems to be shrugging off the one-notch Fitch downgrade to AA+ from last Friday.

The release of Retail Sales in the US was the main North American economic data point on the docket to steer sentiment as we kick off the new week.

The report showed that consumer sentiment is a little shakier than had been expected, with the headline reading showing US consumers increased retail spending by just 0.4% in the month of June, much lower than the 0.8%  that had been expected.   When stripping out auto sales, the less volatile reading also came in weaker than expected, with core retail sales coming in with no change versus the prior month, on expectations there would be a 0.4% rise.

The cautious spending numbers were cited as a by-product of rising mortgage rates and volatile stock markets weighing on the minds of the US consumer, raising concerns that the biggest contributor to GDP of the American economy might take longer to accelerate.After the numbers risk appetite was well bid, with equity futures building on earlier gains and high-yielding currencies seeing traders hit the “buy” button.

Loonie buying interest has the USDCAD pair testing the 1.0400 level, while the broad DXY has given back some earlier gains and is now only higher by 0.22% ahead of the opening bell.   Front month crude is experiencing some selling pressure this morning, currently trading hands south of $105/barrel.   Buyers are beginning to emerge in the metal sector, with front month delivery of Gold ticking slightly higher above $1,280/ounce.Turning our attention to the USDCAD, Wednesday will be a very important day for Loonie traders with the Bank of Canada rate decision and Stephen Poloz’s first press conference as the new Governor.

Data from the CFTC showed that speculative positioning in the Loonie turned slightly more bearish, as speculative traders increased their net short position to $2.4bln as of Tuesday last week.

Looking at the charts, the consolidation of price action for USDCAD over the last few days corresponds quite nicely with the 50% Fibonacci Retracement after the recent rally in USDCAD that stalled at 1.0608, and suggests that the low 1.03s will be needed to be breached in order for the bullish bias for USDCAD to be negated.