Market Drivers for July 31, 2013
German labor data beats but retail sales miss
Aussie slumps towards 9000 before rebounding
Nikkei -1.45% Europe -0.11%
Oil $103.50/bbl
Gold $1333/oz.

Europe and Asia:
AUD Private Sector Credit 0.4% vs. 0.3%
JPY Housing Starts 15.3% vs. 15.9%
JPY Nomura/JMMA Manufacturing PMI 50.7 vs. 52.3
CHF UBS Consumption Indicator 1.44 vs. 1.45
CHF KOF Swiss Leading Indicator 1.23 vs. 1.21
EUR German Retail Sales -1.5% vs. -0.1%
EUR German Unemployment Change -7K vs. -1K

North America:
USD ADP Employment Change 8:15
USD GDP 8:30
USD Personal Consumption 8:30
USD Chicago PMI 9:45
USD FOMC Rate Decision 14:00
CAD GDP 8:30

The dollar was lower against the euro and the yen in morning European trade today ahead of the important FOMC meeting as traders awaited word on whether the Fed will begin to taper its QE program starting in September. The greenback started to slide to 97.50 against the yen as markets speculated that Fed may remain stationary for the time being.

Although US data has seen some improvement in the labor market, other measures of economic activity have been mixed with overall retail sales remaining flat. Furthermore some analysts have argued that the Fed may not only be looking at US growth but at the global picture as well- especially China where the slowdown in activity has been much more dramatic.

US policy makers therefore may not want to compound the problem by curbing stimulus just yet. Therefore the conventional wisdom is that the Fed is likely to remain non-committal with respect to a definitive timeline for the taper. By September the FOMC officials will have two more employment reports to view and will also get a clearer idea about the budget negotiations and will therefore be able to make a more confident choice.

On the economic front the data out of Europe today was mixed with German retail sales missing badly at -1.5% versus 0.1% eyed but the labor markets continuing to show improvement as unemployment declined by -7K versus -1K eyed. The euro continues to find very stiff resistance ahead of the 1.3300 level and today the pair once again was rejected at that figure as it sold back towards 1.3275.

Before the FOMC statement at 18:00 GMT, the currency market will get a glimpse of the ADP data and the US Q2 GDP results. The market essentially expects to see the same readings from the ADP as the month prior, but if there is significant deviation either way the greenback could react violently. An ADP print of 125K or less would likely cause a further selloff in USD/JPY with the pair possibly testing support at 97.00 as hopes of tapering will fade fast.

On the other hand if ADP prints closer to 200K USD/JPY could quickly start to move higher towards 98.50 as hopes for a more hawkish Fed statement revive the bulls.

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