• US durable goods orders fall 1.1% in May; ex-airlines, strong
  • US weekly jobless claims fall -19,000 to 458,000
  • Greek PM: Banking system needs to regroup to cope with crisis
  • House chair: China currency legislation still “on the burner”
  • US sells $30 bln 7-year notes at 2.575%; bid to cover 3.01
  • S&P 500 falls 1.7% to 1074; Gold steady at $1240; Oil unch at $76.40

It was a strange session for EUR/USD. We opened weak in the US and tested lows in the 1.2260s early in the day only to rebound strongly at the European close. The rebound came despite soft equity markets in Europe, renewed Greek jitters , and signs of risk aversion across the commodity and fixed income markets.

Covering of EUR shorts by model funds was a factor today as was buying of EUR/CAD, a cross the market has been heavily short of in anticipation of a series of BOC rate hikes. Those expectations have been dimming all week, helping undermine the Loonie and helping lend a bid to the euro. Shorts taken on expectations that risk aversion would weaken the euro were covered as EUR/USD broke resistance levels at 1.2300 and 1.2350 by day traders, driving the pair as high as 1.2388 before it stalled. It ends the day off its highs but firmer than most would expect, at 1.2325.

USD/JPY was driven to lows of 89.22 on risk aversion, in particular the fall in US bond yields. 2 year notes fell as low as 0.64% today while the 10-year note traded to a 3.06 yield before bouncing higher in afternoon trade. The bounce in yields eased the pressure in USD/JPY, allowing prices to reach afternoon highs of 89.71 on short-covering. Very soggy US equities dragged the greenback back down to 89.50 at the close.

A short-covering bounce in EUR/GBP after the 0.8200 area proved supportive once again helped keep cable offered throughout the US afternoon. It rallied to 1.5005 but held below London session lows at 1.5010 and soon slipped on profit-taking. We end at session lows of 1.4925.

AUD/USD was choppy, spiking to 0.8728 at mid-afternoon before slumping back to 0.8655 as US equities lost ground late in the day. Traders hope to hear more from New PM Gillard soon on the fate of the mining tax.

CAD ends the day marginally weaker, at 1.0430. Hopes for multiple BOC rate hikes are dimming, helping prompt trimming of long CAD positions. 1.0468 was the mid-morning high for USD/CAD in Toronto. A short-lived slide to 1.0375 unfolded at mid-afternoon.