The USD gained versus the JPY for the first time in five days after Fed chairman Bernanke signaled tighter rates is coming on improved economic outlook.

  • The USDJPY rose above 89.20 from as low as 88.00 after Bernanke said the Fed is ready to tighten monetary policy once the economy improves.  Bernanke warned that the US Federal Reserve must continue to prop up the economy for an extended period by cannot do so indefinitely for fear of triggering an inflationary surge.  The yen dropped against all its major counterparts after Japan's machinery orders gained less than expected, adding to signs its recovery will trail that of other economies.
  • Last week's worse-than expected NFP report dented confidence in the economic recovery.  However, yesterday's data encouraged optimism as it showed gains in retails sales and a nine-month low in unemployment claims.  Initial jobless claims fell to 521,000 by the 3rd of October from 544,000 in September reaching the lowest level since the beginning of the year.
  • The European Central Bank on Thursday cautioned against hopes of a speedy economic recovery in the 16-nation euro zone as it left benchmark interest rates at a record low 1% on Thursday for the fifth month in a row.  Trichet reiterated the Group of Seven's statement on currencies stating that excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability.  On a more positive note, Trichet said that the region's economy is emerging from a period of 'free fall' and that there are increasing signs of normalization.
  • Gold declines after a five-day rally that took the yellow metal to a fresh historical high of 1062.70 as the USD plummeted.  The commodity retreats to $1045 in Asia today but analysts believe the correction will be short-lived.  Crude oil rallied to an intra-day high at $72.55 a barrel after a US report showed initial jobless claims dropped.  Today crude oil retreats back towards the $71 a barrel as the USD rebounds following Bernanke's shift to a hawkish tone in terms of the timing of an exit strategy.

Currency to watch out for: EURUSD & USDJPY

  • The EURUSD pivot point is at 1.4790 with a preference to enter into short positions at 1.4780
  • The USDJPY pivot point is at 88.70 with a preference to enter into long positions at 88.75

Today's calendar and market movers:

  • UK PPI Output expected to drop to 0.1%
  • Canada Employment Change expected to drop to 5,000
  • US International Trade expected to drop to -33 billion dollars

Stocks:

  • US stocks closed higher Thursday with the Dow +0.63%, the S&P +0.75% and the NASDAQ +0.64%.
  • As of 06:15 GMT the Nikkei is trading at 1.87% and the Hang Seng at 0.17%