USD Tumbles As Sentiment Moves Higher

The buck reversed earlier gains after Bernanke downplayed recent labor data and the euro rose amid hopes that Greek debt and austerity negotiations are in the final stages. With no top tier economic data released out of the U.S., it was headlines once again that drove price action. Fed Chairman Ben Bernanke testified before the Senate Budget Committee and cautioned that the current unemployment rate 'no doubt understates the weakness of the labor market', noting the reduction in the labor force due to those that are discouraged. The dovish comments boosted market sentiment as it was interpreted that further accommodation is still under consideration. The prospect of QE3 put pressure on the US dollar with the greenback declining against all of the G10 currencies except for the yen.

The euro surged to new highs for 2012 against the USD as the common currency was boosted by prospects for a Greek debt deal in the coming days. Reports that a final draft of the bailout agreement is nearing completion and comments from the IIF that recent talks have been 'constructive' helped the euro to gain against all of its major counterparts today. EUR/USD rallied to trade above its key 38.2% Fibonacci retracement level (of the decline from October highs to January lows) after rebounding from the base of its daily ichimoku cloud.

U.S. equities finished higher after a negative start to the day with the DJIA closing the session up by about +0.26% while the S&P 500 edged higher by around +0.20%. Commodities gained on the back of a weaker USD with the precious metals gold and silver currently higher by about +1.51% and +1.63% respectively while crude oil advanced by nearly +1.91%. UST yields rose across the curve as risk sentiment was supported and the 10-year Treasury yields are currently up 6.8bps to around 1.975%.

There is relatively light economic data flow due out tonight with Japan’s December current account figures and January Eco Watchers survey as the only significant scheduled releases.