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The dollar index continued to pull away from the 80 mark and now looks like it could extend gains in the near term. Traders are now firmly of the opinion the Fed will gradually wind back on asset purchases next year and this should underpin the USD.
Some disappointing unemployment claims, existing home sales and the Philly Fed manufacturing index data was largely ignored as traders focused on the bigger picture on tapering. USD/JPY remained elevated above 104 and USD strength has really been a solid driver of gains in the pair. Today will be the BoJ’s opportunity to outdove the Fed and ensure the pair continues to rally.
However, given the Fed has already done the job for the BoJ this week, the BoJ will not be feeling any pressure today. While it could take advantage of this move in the pair to push it higher, it is more likely to just sit on its hands for now. USD/JPY is currently at its highest since October 2008 as it printed a high of 104.37. The pair has remained resilient ahead of the BoJ and is quite close to retesting overnight highs.
Risk currencies losing ground
Risk currencies continued to lose ground to the greenback with the sharp drop in gold also contributing to the bearish tone. EUR/USD has broken through overnight lows and is now trading at around 1.363, while GBP/USD struggled despite retail sales coming in in-line with estimates. It’ll be another interesting session for the pound today with current account, final GDP and public sector borrowing data due out. That should set the tone for the pair. In the Eurozone we have German PPI and consumer climate data due out. However, I feel most of the price action will continue to be driven by the USD side of the equation.