Euro Trades to Weekly Highs

Eurozone unemployment rate slipped unexpectedly to 8.2% from 8.3% projected indicating that the export led recovery in the 12 member union is beginning to exert a positive influence on the labor markets of the region.

Additionally, Producer Prices increased in line with expectations rising 0.5% or 5.4% on year over year basis which was the biggest jump since 2000. The inflation data confirmed speculation of further ECB rate hikes with traders now expecting the central bank to increase rates by 25bp in its May meeting.

As many analysts have pointed out, yesterday Eurozone manufacturing exceeded US manufacturing readings for the first time in 5 1/2 years and if this combination of negative surprises out of the US along with positive results from the EZ continues into the end of the week the pair may challenge the upper bound of its 1.2250 -1.1850 recent range.

USD/JPY on the other hand saw much more muted action with yen experiencing initial strength on the back of comments by a senior Chinese parliamentary official that China should gradually reduce its holdings of USD denominated debt. A report in Wen Wei Po a Beijing backed Honk Kong newspaper made those comments public at the start of Asian trade which caused selling in USD/JPY to accelerate as traders speculated that China may curb its future purchases of US Treasuries.

The nation has been accumulating foreign reserves at a rate of $50 Billion per quarter and has become the second largest holder of US assets in the world. Later in the day however PBOC distanced itself from the statement by Cheng Siwei by noting that his words expressed his own academic view rather than a material change in the Central Bank's FX management policy. As a result the USD/JPY stabilized near the levels of yesterday's New York close with carry demand still supporting the pair.