-- The euro dropped from the European high of 1.3467 to 1.3428 before buying at the ECB fixing (8:15 am ET) brought it back to 1.3454. It fell off again to the New York low of 1.3410 before slowly recovering to close at 1.3454.
--Yesterday's bland G-7 statement had seemed to give a pass to the recent successful Japanese maneuvers to weaken their currency as it simply repeated the standard G-7 opinion that G-7 policies would not be directed at devaluing currencies.
--Today an unnamed G7 official put a very different cast on the statement. “The G7 statement signaled concern about excess moves in the yen," the official said. "The G7 is concerned about unilateral guidance on the yen. Japan will be in the spotlight at the G20 in Moscow this weekend."
--This 'clarification' sent yen crosses crashing in the European session as the yen sharply reversed recent weakness and the eur/yen dragged the euro down to its European low of 1.3363. The united currency then reversed to 1.3467 on a long fast burst of interest as the currency crossed back above 1.3400. New York ranged between 1.3410 and 1.3476.
Euro closed at 1.3454.
Opened at 94.30 and eur/jpy at 126.77.
--Yen remained weak overnight after US Treasury Brainard's comment yesterday that G-20 countries must refrain from currency devaluation, was viewed as supportive of the recent Japanese government induced yen weakness. The dollar was trading above 94.00.
--This lasted until the still unnamed G-7 official said yesterday's G7 statement had been misinterpreted in relation to the yen.
--The dollar shed a full yen to 93.30 in 15 minutes as the euro plunged from 126.60 to 125.20 in a similar stop mediated run. Both recovered thereafter to 94.00 and 126.20 as funds were seen buying as the stop loss panic waned.
--A repeat of the remarks sent the dollar skidding again and 92.94 and 125.00 were touched as stops just below 93.00 were executed near the London fixing. Recovery stalled this time at 93.35 and 125.65 as new sales entered around noon. The afternoon saw mild buying interest as traders knew that sell stops beneath in both currencies had already been executed and the pairs had moved to 93.60 and 126.00 by early afternoon.
Yen closed at 93.48; eur/jpy at 125.77.
Chief Market Strategist