Latent Signs of QE Hit Euro, Aussie Jobs Next

Flows dominated in another choppy day of trading but the euro put in fresh two-year lows. On the day, the yen was the laggard while the Australian dollar led. The Australian employment report is the highlight of Asia-Pacific trading.

The euro fell as low as 1.2212 after a round of dollar-buying following the minutes of the June 20 FOMC meeting. The minutes were entirely negative on the outlook for the US economy and downcast on Europe and China as well but there was no hint of immediate QE and the market took that as a green light to buy dollars.

EUR/USD immediately fell a half-cent and risk trades initially suffered. The pound was especially weak in US trading, falling below 1.5500 from 1.5575 near the European close.

Additional volatility was injected by record demand at a 10-year US debt auction. The Treasury sold the notes at 1.46% compared to the 1.52% the market was expecting an enormous miss in auction terms. Ten-year yields fell near a record low, pulling down USD/JPY, then rebounded on speculation that Chinese/Japanese demand was responsible not investors fearing economic weakness.

Otherwise, newsflow was light with no developments in Europe even as periphery yields eased lower.

At 0130 GMT, Australia will release the June employment report. Zero job growth is expected and the unemployment rate is forecast to tick up to 5.2% from 5.1%. As always, the part time/full time breakdown will be an important secondary factor.

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-AB