The euro opened the U.S. market (8:00 am) at 1.3418 on the low side of the Asian and Europe range of 1.3408-51. Late Asian trading saw several failed attempts to break yesterday’s high at 1.3456. The euro was already retreating from those efforts when EMU industrial production numbers for September came in weaker than forecast at 5:00 am (-0.5% m/m vs. -0.3%). But they added no pressure and the NY open was higher than the low produced by the figures, which was the day's bottom.
After pricing in a narrow 1.3414-25 range for the first 45 minutes of the session a sharp move higher in eur/yen, reportedly from a U.S. hedge fund broke through to the euro and drove the currency to 1.3446. It paused for about twenty minutes then jumped to 1.3454 but was blocked by offers above the prior day's high at 1.3456.
Comments from the ECB's chief economist Peter Praet that the bank could adopt negative interest rates or institute asset purchases if need be to boost inflation, elicited a violent reversal. In twenty-five minutes the euro fell from 1.3454 to 1.3392, recovered briefly to 1.3407 and then sank again to 1.3391, the day's low. The drop in the euro had felled the eur/yen to 133.23 by about twenty minutes later. After creeping back above 1.3400 after only 30 minutes below figure, just after 11:00 am the currency saw another sharp change of direction as buyers in the euro and the cross around the London fix (4:00 pm in London) pushed hard on the recent shorts and broke through the high to 1.3470 with the eur/yen reaching 133.68. The surge subsided and for the next four hours the euro traded between 1.3445 and 1.3465.
But they day was not yet over. At 4:30 pm the euro bolted higher, from 1.3458 to 1.3485 in three minutes and to 1.3498, the day's top in under an hour. The cause of the late rally was a comment from Janet Yellen, the Fed chair nominee, that the Fed "has more work to do" to aid an economy and labor market that are still underperforming.
"I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy,” said Yellen, the Fed's current vice chair, in prepared remarks for the Senate Banking Committee at her nomination hearing tomorrow.
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