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A rather muted session yesterday in North America saw high-yielding currencies slightly bid, and while stocks exhibited a lack of meaningful volume, the VIX was squeezed to its lowest close since March of this year at 11.83.

The Reserve Bank of Australia held their monetary policy meeting overnight, and as expected dropped the official lending rate by 25 basis points to 2.5%.   Despite Governor Stevens reiterating that the inflation outlook may provide scope for further easing, and the Australian dollar remains overvalued, the statement was a little less dovish than expected, and a “buy the rumor, sell the fact” mentality took over and boosted the AUDUSD pair.   After testing the 0.9000 handle against the USD during the European session, the Aussie has settled back into the mid-89 region as we move into North American trade.

It was a mixed bag in terms of equity markets during the Asian session, although the Nikkei and Shanghai Comp both managed to register gains.   Reports that Japan’s civil-service pension fund was considering to change its allocation strategy to include more domestic equities helped the regional index gain 1.0%, while another reverse repo from the PBoC that injected 12bn CNY into its banking sector aided the Shanghai Comp in adding 0.49%.

Checking in across the Atlantic, the UK released Manufacturing Production numbers for the month of June this morning.   Hoping to build on the recent string of positive data points, output produced by manufacturers in the region was expected to increase by 0.9% on a m/o/m basis, erasing all the losses from last month’s worse than expected 0.8% drop.   The official number blew expectations out of the water, and posted a 1.9% increase over the month of June, the best number since August of 2012.   The pound made a run to try and vault into the 1.54s against the big dollar, but after being rebuffed at that level is now essentially unchanged on the session in the mid-1.53s.

The manufacturing data comes just before Bank of England Governor Mark Carney is set to release the central bank’s quarterly inflation report, along with what many market participants expect to be some form of forward guidance in regards to monetary policy.   The possibilities for forward guidance from the governor are either parameter specific, and would most likely focus on one or both of unemployment or nominal GDP, or would be time specific and pledge rates would stay at record low levels until sometime in the future.   Despite the success forward guidance has had with other central bank’s monetary policy, there are some members on the Monetary Policy Committee that have their doubts. Should the statement provide a vague or loose-framework that could be open to interpretation (or easily amendable at later to dates) look for this to strengthen the pound, as it would signal some members of the MPC are still worried about the potential of raising rates earlier than forecast and Carney was not able to get the rest of the committee on the same page.   On the other hand, a strong statement based on one or more economic parameters or time tables should cause the pound to weaken, depending on whether or not the market judges these parameters as attainable in the short-term.

Focusing on the Eurozone, better than forecast economic data from the common-currency bloc has added a bit of pep to the EUR’s step this morning.   Although it was released that the Italian economy shrunk for eight straight quarters (its longest contraction on record), the decline for Q2 was less than expected, with quarterly growth only decreasing by 0.2% when economists had forecast a 0.4% contraction.   German industrial orders also registered strong numbers in June, up 3.8% over the month and besting the median analyst estimate of 1.0%.   Looking through the headline print, the number wouldn’t have been as pretty without such big-ticket items like sales of airplanes at the Paris air show, however the number is still a positive as orders within the EZ picked up by 10%.   The EUR is up slightly against the USD heading into the North American open, looking to make a charge at the 1.33 handle.

Trade balance numbers for both the Canada and the US were released this morning, and as the majority of traders in Canada make their way back to their desks this morning, estimations were to see their country’s trade deficit widen slightly to $0.5bn in the month of June.   The Canadian trade numbers came in essentially bang on expectations, although last month’s deficit was revised from $0.3bn to $0.8bn, so the deficit actually narrowed from May to June.   Exports rose by 1.4% over the month of June, led by gains in precious metals; overall prices were pressured somewhat, while total volume was up 2.1%.

The more surprising of the two numbers came from south of the 49th  parallel, as the trade deficit in the United States narrowed from $44.1bn to $34.2bn.   The better than expected deficit position and $4.1bn increase in exports over the month of June sets up the US for what could be a strong Q3, especially if this is the beginning of a new trend for export activity in the US.

Equity futures are slightly underwater before the opening bell in North America, however off their earlier lows on the back of the better than expected trade numbers out of the US.   WTI is on the rise and hoping to gain back yesterday’s losses, with the front-month futures contract testing the $107/barrel level.   The Loonie is slightly weaker after grinding higher against the USD yesterday, however USDCAD continues to consolidate after bouncing off trend-line support at the beginning of the month.   The stochastic reading for USDCAD is edging into oversold territory and is close to turning over, while yesterday’s candlestick somewhat represents a dark-cloud cover reversal pattern, however confirmation will have to be based on today’s price action.    Tomorrow  we have both Building Permits and the Ivey PMI survey on the docket in terms of Canadian data, with employment numbers at the end of the week to round out the important releases for Canada.   Technical resistance for USDCAD lies in the 1.0430 region, while a test of trend-line support coming in at the 1.03s will most likely be met with USDCAD buying interest.

Further reading:

EUR/USD Aug. 6 – Higher in range despite strong US figures, weak Italian GDP

UK manufacturing production jumps – GBP/USD closer to 1.54