German Story says no Yield Cap, Onto BoC

Australian GDP slowed; yield cap unlikely; Eurozone retail sales weakened; Swiss CPI flat. The market awaits non farm productivity and unit labor cost. Key event is BOC policy decision. A new Pemium Insights edition is due later today

AUDUSD downtrend continued throughout the Asian session after Q2 GDP slowed quarterly to 0.6% from 1.4% and annually to 3.7% from previous 4.4%. Another factor that increased the pressure on the Aussie was Chinese HSBC PMI services that fell to 52.0 in August fro 53.1 which is one year low. The pair fell to 1.0166 in London and now trades around 1.0185.

Traders have been focusing on an article in German newspaper Frankfurter Allgemeine Zeitung that quoted unnamed ECB official that yield cap is very unlikely to be a part of the ECB new bond buying program. The story did add hat any bond purchases will continue to be sterilized.

Eurozone retail sales declined 0.2% in July erasing 0.2% gain seen in June while the annual print weakened to -1.7% from previous -0.9%. German economic resiliency appears gone as the country is being drawn deeper into the Eurozone troubles. German retail sales fell 0.9%. EURUSD declined to 1.2502 and bounced to 1.2535.

Swiss CPI was flat in August month over month from previous -0.5% and on annual basis rose to -0.5% from previous -0.7%.

The US session will start at 8:30 am ET with Q2 non farm productivity that is expected to be revised higher to 1.8% from 1.6% and unit labor costs that are seen lower at 1.5% from 1.7%.

CAD traders await the BOC at 9:00 am which is widely expected to keep the overnight rate steady at 1.00% where it has been since 09/2010. While the key rate is likely to remain at current level well into 2013 we could see a softening of the language in the accompanying statement as Canadian reports, especially from the labor market, have been on the weak side recently.