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EUR/USD made a move of around  pips – from the lows of 1.2288 that followed the terrible Non-Farm Payrolls report, the pair made a huge run, broke the 1.24 level and continues advancing in high ground.

We haven’t seen such strong post NFP action in quite some time. The reaction could be explained by three four five reasons:

  1. Hopes for QE3: The disappointing NFP, only +69K, and the accompanying downwards revisions and additional figures could push the Fed to print more dollars. There are so many reasons why QE3 is not on the cards now, but the market doesn’t have to care.
  2. Short covering: The euro fell so badly in recent weeks, that perhaps the recent fall below 1.23 was just too much for seeing an immediate continuation. Shorts, that reached huge levels, could be covered now
  3. BOJ Rumors: The Bank of Japan doesn’t like the stronger yen. The currency also strengthened following the Non-Farm Payrolls. There is a rumor that the BOJ checked out rates. They usually intervened in USD/JPY, but they also expressed their dissatisfaction with the plunge in EUR/JPY, which fell below 96 in the wake of the NFP. Buying (or rumors of  buying) EUR/JPY could also boost the yen.
  4. Rumors of Bond Buying by the ECB: Italian and Spanish bond yields are dropping. There are rumors that the European Central Bank finally renewed its bond buying program (SMP). If this is true, it is certainly good news.
  5. Coordinate Rate Cut Rumors: More from the rumor mill – there are rumors that the ECB will cut interest rates together with other central banks as early as Monday.

EUR/USD peaked at 1.2460 before dropping to 1.2438 at the time of writing:

EUR USD Massive Comeback June 1 2012
EUR USD Massive Comeback - Click image to enlarge

One euro positive figure is the approval of the fiscal treaty by Irish voters, although this was widely expected.

ISM will soon release its manufacturing PMI. This could be the trigger for another big move.