The euro opened the U.S. session at 1.3306 (8:00 am ET) after dropping to the day's low in Europe at 1.3266 and then rocketing higher to 1.3325 on German industrial production numbers for June. Complementing yesterday's strong factory orders, production rose 2.4 percent in June, eight times the 0.3 percent prediction, and 2.0 percent over the year, on a -0.3 percent forecast. It was the best monthly performance since July 2011 and the best annual result since November of the same year.
After the open the euro moved in a narrow 1.3291-1.3317 range for two hours. With no U.S. economic releases, it was movement in the yen, which was bid the entire session that eventually forced the issue. As the dollar/yen fell below 97.00, the euro rose through the European high at 1.3325 to 1.3329. Sell orders around 1.3330 initially capped the rise, pushing the pair back to 1.3313, but with the dollar/yen continuing to fall, the euro gain resumed, to 1.3335, followed by a dip to 1.3318 and then the final lunge over 1.3330 about 1:00 pm, which then marked the bottom for the remainder of the session.
Several other factors played into the dollar weakness. The President of the Cleveland Federal Reserve, Sandra Pianalto said she would be ready to scale back the central bank's quantitative easing program if the labor market continues to improve, thus echoing several other regional presidents who have voiced similar opinions in the past days.
Although the end of the easing program should push U.S. interest rates higher, its immediate effect has been to lower equity prices around the world. Despite the Fed comments the yield on the generic 10-year Treasury lost 4 basis to 2.60 percent after a good auction, adding to the dollar’s woes. Also the rating agency Fitch retained Germany's AAA listing.
The Dow, Nasdaq and the S&P all closed down about one third of one percent. It was the third loss in a row for the Dow and the S&P and the second for the Nasdaq. In Asia the Nikkei lost 4.0 percent, the Hang Seng 1.53 percent and the Shanghai Composite shed 0.67 percent.
The euro closed at 1.3337, 8 points from the day's high.
YEN & EUR/JPY
Dollar/yen began the U.S. market at 97.26 and the cross opened at 129.38 and both levels were the high for the session. The dollar was offered against the yen from the start with U.S. equities taking the lead from Asia where the Nikkei lost 4.0 percent, 576 points, and Nikkei futures continued the fall in New York.
By 10:00 am the dollar/yen had reached 96.70, moving lower, consolidating and then dropping again. Just after 11:00 am the market turned up from 96.43 and recovered to 96.70 by the London close. The cross had fallen to 128.52 at the same time and recovered to 128.82 at the European close.
In the New York afternoon the pattern resumed moving lower, pausing and then falling again. The dollar /yen reached and closed at the low of 96.33 and the eur/yen did the same at 128.46.
The BOJ monetary policy statement and press conference is on Thursday.
The Australian Dollar fell to the day's low at 0.8920 in European trading as aud/nzd stop loss orders below 1.1340 combined with aud/yen sales to pressure the dollar down.
That bout of weakness was the last as the aussie joined the general run against the U.S. Dollar and moved higher into the American open at 0.8940. The aussie traded higher through the New York morning, eventually vaulting the stops at 0.9000 just before the London close and reaching 0.9025.Reaction after the sharp move up brought the aussie back to 0.8990 by mid-afternoon and it closed at 0.9000
Chief Market Strategist