Risk Off Environment Persists; USD, CHF and JPY Benefit

USD is stronger in the ongoing session after Moodys placed Spanish AA2 rating on review. Euro ignores strong German Retail Sales; Eurozone CPI lower. US session will bring Canadian and US advance Q2 GDP, Chicago PMI

Only a few hours after Moodys placed Spanish rating on a review and downgraded ratings of six Spanish regions, the government decided to dissolve the parliament and hold elections by the end of November. In a typical risk off environment, higher yielding currencies and the Euro are sold while the USD, the CHF and the JPY benefit.

German Retail Sales in June jumped up significantly to 6.3% from previous -2.8% and Eurozone CPI fell in July to 2.5% from previous 2.7%. In the UK Mortgage Approvals increased in June to 48K from 46K. Neither the common currency nor the Sterling could benefit from these news as the underlying risk off sentiment is powerful.

Voting on the Republican proposal was postponed yesterday and should happen today. Should the proposal be passed, especially if it happens in the afternoon, illiquid Friday markets would exaggerate the moves.

The US session will bring GDP data for Canada and the US and also the PMI indicator from the Chicago area. Canadian May GDP due at 8:30 am ET is expected to increase by 0.1% from an unchanged print in April while the y/y print is seen steady at 2.8%.

Second quarter US GDP is seen lower at 1.7% from previous 1.9%. Poor data that we have seen over the past few months, especially weak labor market, disappointing retail sales and worsening PMI data, support the notion of a low print which is likely to reignite talks about how temporary the current slowdown is.

July Chicago PMI due at 9:45 am ET is expected to print 60.1 from previous 61.1

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