Euro at 2009 highs against the yen

Janet Yellen took a step closer towards being officially appointed Fed chair, and James Bullard was on the wires supporting the need for more QE, but all this dovish talk was not enough to derail the USD.

The dollar index held its ground above 81, with investors choosing to focus on a good unemployment claims reading and better-than-expected flash manufacturing PMI. Unemployment claims fell to 323,000 and this reading was also well below analysts’ estimates of 333,000. Effectively this brought the 4-week average claims down 7000 to 339,000 and kept the tapering theme alive.

USD/JPY was one of the biggest beneficiaries of the dollar strength and has remained resilient in Asia and trading at around 101.23. In May, USD/JPY traded as high as 103.74 and that will be the next level to watch ahead of September highs at 101.54.

Draghi comments drive a euro reversal

The single currency reversed its losses after ECB President Mario Draghi talked down the possibility of negative deposit rates. Draghi essentially said there are no fresh developments on that front and the last negative deposit rate discussion took place at the last meeting. Additionally, Asmussen said whilst a negative deposit rate could not be ruled out, he would be very cautious about going down this road. While EUR/USD was mildly firmer, the big move was in EUR/JPY which surged to 136.55; its highest level since October 2009.

The main underperformer in the risk space was the AUD, which dropped significantly against the greenback on Glenn Stevens’ comments. He continued to talk down the AUD, with intervention being an option or part of the available tools. It will be interesting to see if it can halt its slide after a minor recovery off A$0.92. AUD/USD is currently trading at A$0.923 with some analysts feeling the costs of intervention outweigh the benefits.

Later today we have the German Ifo, Italian retail sales, eurogroup meetings and another speech by ECB President Mario Draghi. Over in the US we have speeches by Fed members George and Tarullo. This should be enough to keep traders guessing on tapering going forward.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.