Risk Appetite Subdued Ahead Of US GDP- USD Firms

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Asia Pacific markets were lower after a lackluster performance in US equities saw the Dow, the S&P, and the Nasdaq fall by .3%, .4%, and .6% respectively. Disappointing topline revenues and softer guidance reports weighed on sentiment one day before the US is set to release Q2 GDP figures. Remarks made by Federal Reserve Bank of St. Louis President James Bullard also helped subdue risk appetite after he suggested that the US is moving closer to Japanese-style deflation and may need additional quantitative easing measures. The Hang Seng index, the Shanghai SE composite, and the S&P/ASX 200 index were off by .3%, .4%, and .7% respectively. The Nikkei 225 was the worst performer, losing more than 1.6% after a report showed June industrial production had fallen by 1.5% m/m. Consensus estimates had called for an uptick to .2% from .1% a month earlier. Japanese markets have fallen more than 2% in the past three sessions amid ongoing concerns regarding the health of the US recovery and persistent strength in the yen. The dollar slid to a 8 month low versus the yen, as uneasy investors seek haven ahead of today's US data flow.

Commodities were mostly lower, with crude oil paring gains to trade at $77.70per barrel at 10am in London. Gold holds just beneath $1170 per ounce after failing to break through the $1160 support level earlier in the week. Risk-off trades supported the dollar, with the index trading higher by .6% to 81.90. Treasury yields continue to fall, with the 10-year note falling to 2.95% and the 5-year yielding 1.63%.

Euro Retreats After Testing 1.31

The euro reversed yesterday's gains after testing the 1.31 handle early in the US session. Disappointing German retail sales figures accelerated haven flows, pushing the single currency as low as 1.2980. Eurozone unemployment was in line with expectations, with the figure printing at 10.0%. Support is seen at the lower bound trendline of the ascending channel at 1.2960. Downside risk for the euro increases with a break below the 61.8% Fibonacci extension taken from the July 20th and 29th crests, at 1.2920, with targets eyed lower at the 1.28 figure, and 1.2740. Interim resistance stands at 1.3045, backed by the 1.31 handle, and 1.3150.