The euro began U.S. trading at 1.3722 (8:00 am ET) within seven points of the European high, 1.3729 which had come about four hours earlier. Despite unexpectedly weak German industrial production for October -1.2 m/m percent vs. the 0.7 percent forecast and 1.0 percent y/y vs. its 3.1 percent forecast, the euro stayed resilient, rising from 1.3710 at the release to 1.3726 about 35 minutes later and 1.3730 in four hours.
The gain in the united currency was minimal but in the face of the poor German numbers any rally at all was remarkable. The move tells you all you need to know about the problems of the respective central banks. The ECB needs to find a way to give the EMU economy more monetary relief. But with the main refinance rate at 0.25 percent, quantitative easing effectively blocked by German opposition and negative deposit rates rejected at the last ECB meeting, it is near the limit of traditional monetary policy.
Across the Atlantic, the Fed needs to end or curtail its $85 billion a month of securities purchases before property and equity levels inflate further, but fear, particularly of the reaction in the bond market after last summer’s debacle in June and July following the Fed's initial tapering signal, will likely keep the bank in the market until the end of the first quarter.
The strong euro, weak dollar produced by the default policies of each bank will be with the markets until one or both of the central banks changes their mind.
The New York market remained quiet after the open, moving in a 15 point range until about 90 minutes beyond the London close. It was supported by eur/yen demand operating over dollar, the sense that central bank policy is on hold until at least the New Year and the momentum of the euro at five week highs.
Comments from St Louis Fed President James Bullard, that an improving U.S. job market had increased the probability of the Fed beginning a reduction in its purchase programs were ignored. "A small taper might recognize labor market improvement while still providing the (Fed's policy-setting) committee the opportunity to carefully monitor inflation during the first half of 2014," he said in prepared remarks for the CFA Society St. Louis
Belying the range bound session until that point, at 1:35 pm the euro suddenly erupted from 1.3726 to 1.3746 in one minute. Some market chatter laid the blame on stops above 1.3730 while others said it looked like a large buy order hitting the market. Either way once the buying pressure waned the euro traded in a 1.3733-40 range for the rest of the day, closing at 1.3739.
Dollar/Yen and Euro/Yen
Dollar/yen opened at 103.05 and euro/yen at 141.40, as the stronger cross and rising euro continued to dominate trading operating over dollar. Dollar/yen first dipped to 102.97 and the cross to 141.24 just after the open, both were the day's low.
Dollar/yen and euro/yen rose steadily through the morning session, with persistent yen weakness combining with an appreciating euro, so that it was difficult to tell whether the impetus higher came from one or the other. Dollar/yen found resistance at 103.15 and then 103.25 before reaching 103.32 just after the London close with the cross touching 141.80 at the same time.
Just after 1:30 pm the cross shot to 141.94, the day's high as the euro surged to 1.3746. The dollar/yen did not participate. By 3:00 pm the dollar/yen had pulled back to 103.19 and the cross to 141.76. But both closed higher, at 103.28 and 141.89.
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