Wall Street is being propped up by this morning’s upside surprise in Q2 GDP. The Bureau of Economics reported that Q2 GDP rose 4.2% (forecast 4.0%) They attributed the upward revision to “nonresidential fixed investment and private inventory investment that were partly offset by a downward revision to personal consumption expenditures (PCE).”
Wall Street was mostly in positive territory as the GDP data supports the strong US growth narrative. Traders appear to be a tad cautious after the recent gains and ahead of US PCE data on Thursday and because of the uncertainty of global trade. US Treasury yields are little changed.
FX traders are jockeying for position. The US dollar opened in New York relatively unchanged against the majors except against EUR and AUD. The better than expected Q2 GDP numbers undermined the commodity currency bloc led by a drop in AUDUSD. EURUSD bounced and cracked 1.1700 when the Deputy Prime Minister of Italy Luigi Di Maio denied reports that Italy asked the ECB for help. GBPUSD added to earlier gains after talk that the Brexit negotiations would extend into November.
USDCAD is still in the limelight. A Toronto Globe and Mail article released during the Tokyo session
said Canada would make concessions on dairy to seal a trade deal with the US. The USDCAD retreat seen in Asia and Europe has been completely reversed on profit-taking in the run-up to the 1400 GMT option expiry time. The prospect of large USDCAD selling for month-end portfolio rebalancing combined with a Canada/US trade agreement by Friday will send USDCAD plunging to 1.2500.
The US dollar index is in an uptrend while prices are above the 94.50-60 area, which if it holds suggests recent EURUSD gains may be fleeting. However, until there is a decisive break above 97.00, FX markets will continue to consolidate within their current ranges.