The US dollar is mixed. It is recouping some of yesterday's losses against the euro and yen but is heavier against the other major currencies.  Short-covering in the dollar-bloc that began yesterday has been extended, and sterling was aided by the 0.7% preliminary increase in Q2 GDP.  

The rout in Chinese equities continued. Although trading was volatile, the immediate selling may have exhausted itself. The Shanghai Composite initially fell 5% before recovering in full and managed to turn 1% higher before finally closing 1.7% lower. The financial sector, led by brokerages, was firmer.  Margin usage yesterday fell by the most in two weeks (~$3.4 bln or about 2%) while the securities regulator reaffirmed the government's support for the equity market, contrary to market rumors. 

Another encouraging sign is the index of Chinese companies that trade in Hong Kong fared better, losing only about 0.5%. Also, the Hang Seng itself and the larger bourses in the area, Korea's Kospi and Taiwan's Taiex managed to eke out minor gains.  

The gains among the dollar bloc currencies seems largely about position adjustments, and partly drivenby the crosses.  The New Zealand dollar is leading this week's move by the bloc. It has gained 1.5% since the end of last week.The Aussie has gained a third and the Canadian dollar a fifth as much as the Kiwi.  

The proximate spur may be RBNZ Governor Wheeler's speech later today (Wednesday in New Zealand). The shorts are concerned that Wheeler may build on the recent RBNZ statement that had dropped references to the need for currency depreciation. He may recognize that the past currency depreciation may boost price pressures. This would be understood as a signal that there may be less rate cuts in the pipeline than many suspect. The RBNZ has unwound half of its mini-tightening cycle. 

The New Zealand dollar is moving above its 20-day moving average. It has not finished the North American session about this average since the end of April.  It is just below $0.6650 today. That said a move above last week's high near $0.6700 would further lift the tone. The Australian dollar made a marginal new multi-year low (a little below $0.7260) but rebounded to flirt with yesterday's high. A close above there (~$0.7325) could signal a potential key reversal. With oil prices still under pressure, the Canadian dollar is simply consolidating within yesterday's ranges.  

In a fairly light economic calendar, the UK stands out. The preliminary estimate for Q2 GDP was 0.7%. This is in line with expectations and represents an acceleration of growth after 0.4% in Q1. Business services and finance contributed while oil output soared.  Business services and finance were flat in Q1, but in Q2 accounted for a 0.5 percentage point increase in GDP. The mining/quarrying/drilling sector rose 7.8% in Q2, the strongest increase since Q3 1989.  

Manufacturing, on the other hand, contracted by 0.3% and construction was flat. Manufacturing does not appear to be off to a good start in Q3.  CBI noted yesterday that its measure of manufacturing orders fell to a two-year this month and export growth remains weak. 

Sterling traded almost a cent higher in response to the news. It recorded last week's low before the weekend near $1.5470 and made it up to almost $.15600 yesterday before falling back to about $1.5530 before the data. It is now holding above yesterday's high. Last week's highs in the $1.5630-70 band may provide a cap until tomorrow's FOMC statement. 

For its part, the euro is in about a half cent range in the upper end of yesterday's ranges. The market awaits fresh impulses.  However, the recent gains have been sufficient to turn the five-day moving average above the 20-day, for the first time in a month. The euro appears vulnerable to further slippage with the $1.1000-20 area providing support. 

The dollar has bounced smartly off the JPY123 area tested yesterday. It has approached yesterday's highs near JPY123.85. Higher US stocks and bond yields could lift the dollar into the JPY124.00-20 area in North America. US data includes the CashShiller house price index, where a firmer number is expected (20-city 5.6% year-over-year from 4.91% in April), Markit preliminary services PMI (expected 55.0 vs 54.8), and consumer confidence (softer).