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Equities were relatively sanguine yesterday until a late afternoon article from Wall Street Journal reporter Jon Hilsenrath propelled stocks and high-yielding assets higher into the close.

Although the article didn’t provide much in the way of new information, other than reiterate the Fed would likely keep its asset purchase program unchanged at next week’s meeting and may look at lowering its unemployment threshold for when they would begin to assess the prospect of higher rates sometime down the road should the quality of employment gains continue to underwhelm, markets perceived the article as a catalyst to add risk to their portfolio’s and sent the S&P higher to close up by just over 4pts. The DXY was well offered throughout the majority of the North American session, sinking back below the 82 handle while the Loonie mounted a charge to try and push USDCAD into the mid-1.02s.

Things turned a little rockier overnight, with the Nikkei tumbling by just under 3% and putting in its worst performance in more than a month. The unwinding of equity exposure was despite the fact that core CPI in Japan rose to its highest reading since 2008, coming in with a 0.4% increase over the last 12 months, and besting economists’ estimates of a 0.3% rise. Although positive signs from ‘Abenomics’ are beginning to emerge throughout the region, the broad-based USD weakness pushed USDJPY through the 99 handle, putting undue pressure on equities and risk appetite.

Investor sentiment didn’t receive any help from developments in China overnight, as the PBoC’s governor reiterated that the regime with continue with its “prudent monetary policy” and dashed the market’s fleeting hopes of another full-scale QE injection or reserve requirement cut to boost demand. It is becoming quite apparent that the government favours reforms as opposed to printing more money and hoping that solves the underlying issues, so if we were to see any measures aimed at providing stimulus, they would most likely be targeted fiscal projects, not broad-based monetary policy changes. The Shanghai Composite did not cheer the developments, and dropped to the 2000 level in a show of protest.

A relatively quiet economic calendar into the end of the week has price action in Europe subdued. EU finance officials have agreed to unlock the next €5.8bn tranche of aid to Greece, with €2.5bn coming from the EFSF, €1.5bn coming from income accrued on Greek bonds held at EU institutions, and another €1.8bn due to be lent from the IMF. The decision to proceed with the next round of aid to Greece comes on the 12-month anniversary where ECB chief Mario Draghi pledged that the central bank would do whatever it takes to preserve the Euro, marking one of the most successful verbal interventions in a long time. Major bourses are generally weaker as we approach the North American cross, with the Stoxx sitting close to unchanged, and the FTSE and Dax both dropping close to 0.5%. The EUR is also sliding this morning, dropping 0.2% to creep back into the mid-1.32 region against the big dollar.

Heading into the North American open, futures are softening for the second day in a row, seeming to have caught a cold from activity during the overnight session. The Loonie has mounted a few attempts to move higher overnight, however most bouts of strength have been met with selling pressure, keeping the pair anchored to yesterday’s closing price, unable to cause USDCAD to break trend-line support with any conviction. Along with the weakness see in equity futures, traders are also scaling back on their energy positions and offering up WTI this morning. The black gold has given back almost a 1% and virtually all of yesterday’s rebound, as WTI changes hands at $104.5/barrel just before the opening bell.

With only the Revision to the University of Michigan Consumer Sentiment survey on the docket for economic data today, markets have the potential to take a breather as we head into the end of the week. With what may be restrained price action before the weekend, this would be a good time to speak with your dealing teams about strategy for next week, as it is setting up to be a volatile week in terms of economic releases. GDP figures for both Canada and the US will be released next Wednesday, which will be capped off by the July FOMC rate statement. These events will be followed by the closely watched Non-Farm Payroll report out of the US on Friday, where the number will be scrutinized to determine how it will affect the Fed’s perception on when they will begin to trim their asset purchases.

Further reading:  GBPUSD: Maintains Bullish Momentum, Targets Higher Prices