Risk aversion remained the name of the game in London as news out of China once again led equity marts lower. Reports that Chinese state-owned companies will be allowed to default on commodity derivative contracts created quite a stir and raised concerns about counterparty risk. Chinese shares plunged nearly 7% as a result. The ripple effect saw European bourses come off about 1% thus far while US futures remain in the red as well. The move away from risk helped the US dollar remain better bid, while the yen crosses remained heavy following the widely expected Japanese election results.

EUR/USD has managed to grind back a touch but remains near the 1.4257 overnight low. Cable has followed a similar path and looks to have put in a double-bottom by the 1.6184 lows. The pair needs back above 1.6240 to shift the focus higher. USD/JPY continues to recover from the post-election plunge to 92.55. The knee-jerk reaction lower was surprising given that the results were pretty well baked in the cake and the pair has managed to recoup about 80 pips higher. The commodity currencies came under pressure on the selloff in risk and USD/CAD was one of the major beneficiaries. The pair continued its climb and trades by 1.1040/50 ahead of the NY open, after an overnight low just below the 1.0900 zone.

Looking ahead to NY trading, we have some top tier economic data due up that could stir things up. Canadian GDP is on tap at 830am ET and should elicit some sharp volatility in USD/CAD. A better than the expected 0.2% result should see the pair correct lower. The highlight for the US is the Chicago PMI at 945am ET. The market is expecting an improvement to 48.0 from 43.4 and a better number here should see more risk taking emerge †in other words, a weaker USD.