USD up on US Data, ECB Dips into Weaker Collateral

Better signs of US growth helped boost the dollar. In Europe, the ECB announced it would accept lower-tier collateral, perhaps setting the stage for its next move. The Canadian dollar piggybacked on upbeat US data to be the best performer while the yen lagged.  24 hours after issuing a Premium long in GBPJPY, the pair is up 200 pips. 2 new longs in GBPJPY were issued this afternoon alongside 2 new trades in USDJPY as Ashraf outlines the mechanics of Sunday's Upper House elections. EURJPY (2), USDCAD (1), USDCHF (1) and AUDUSD (1) trades are also in progress, which all can be accessed in the Latest Premium Insights.

A US Senator questioning Bernanke remarked that the second day of Humphrey Hawkins is like drinking day-old coffee and eating a stale donut and that summed up part-2 of Bernanke's testimony. He said it was “way too early” to make a call on tapering in September and said that rates won't rise at least until unemployment hits 6.5%.

The data pointed to better trends in employment and factories. The Philly Fed hit 19.8 compared to 8.0 expected, it was the highest reading since March 2011. Initial jobless claims were at 334K versus the 345K consensus. The reactions to both reports was dollar-positive, suggesting markets are growing more concerned with growth and less interested in the exact timing of the taper.

The ECB tried to slip changes in collateral rules past the prying eyes on market watchers. They started a press release saying “the ECB decided to further strengthen its risk control framework” but the contents of the notice were the opposite.

They will begin accepting A-rated ABS compared to strictly AAA previously. They will also investigate further measures including accepting mezzanine (lowest) tranches of structured ABS. Mezzanine tranche, A-rated ABS are a much higher risk than sovereign debt purchases, something that caused an uproar in the past.

Separately, the ECB made collateral rules for sovereign debt higher, suggesting it's no longer worried about bond yields, or that it's preparing new measures to depress yields – another LTRO perhaps?

Looking ahead, the G20 finance minister meetings begin in Russia on Friday. Currencies are not at the top of the agenda but concern about Fed tapering could get some notice. Major market-moving comments are unlikely but expect headlines from all the major political players.

The lone economic data point on the Asia-Pacific calendar is the Japan May all-industry index at 0530 GMT. The consensus is for a 1.2% m/m rise, something that signals the ongoing rebound in the Japanese economy.

The main mover could be positioning trades ahead of the Upper House elections in Japan on Sunday. An LDP-led super majority could have major impacts for the yen, something we discuss in the Premium insights.