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The overnight session was characterized by broad USD weakness following less hawkish than expected Fed minutes and a decidedly dovish sounding Bernanke. The Greenback retreated against all major currencies, with the exception of the JPY, which was softer on last night’s Bank of Japan statement.

The June minutes released during yesterday’s American session appeared more dovish than the policy statement and press conference a couple of weeks ago. The minutes highlighted optimism about labour market improvement, and growth in the later part of 2013, however members also expressed concerns about disinflationary trends.

Those members wanted to see more encouraging data in both parts of the Fed’s Dual Mandate (employment & price stability) before they thought seriously about cutting back on asset purchases. Also fewer members than previously suggested seemed concerned about too-low-for-too-long accommodative polices encouraging risky financial behavior.

Adding to the dovish side of things, Fed Chairman Bernanke seemed to reverse course during a speech at an economics convention, where he noted that “Highly accommodative monetary policy for the foreseeable future is what’s needed in the U.S. economy“.

USD/CAD Standing Out

While all currency pair reacted strongly to the data, the USDCAD response was among the strongest as it plunged nearly 2 big figures at one point during overnight trading into the 1.03 handle. The pair’s move was accelerated as broad USD weakness was compounded by Loonie buying on the back of strong oil prices.

As the American session warms up today the pair has pulled back and is trading only modestly lower than where is ended the day yesterday. Looking forward this seems like a buying opportunity for near and medium term needs. The reality is that while the Policy statement a couple of weeks ago seems at odds with yesterday’s news, Tapering is still very much on the radar, it’s just a matter of timing, could start in the fall. Last night feels like a classic example of the market overreacting. Tapering will remain in headlines, and that lends itself to the USD.

It wasn’t all about the Fed last night, during the Asian session the BoJ had their regular Rate & Policy Statement. As expected BoJ Governour Kuroda maintained a pledge to expand the monetary base by 60 to 70 trillion Yen per year as well as keep the overnight retreat effectively zero. However they did upgrade their view of the economy, and for the first time since 2011 used the term “recovery”. Between Bernanke, the BoJ, and ongoing speculation that China will engage is additional stimulus, Asian stocks had a great day: Australian’s ASX, the Hang Seng, and Shanghai Composite led the way advancing 1.31%, 2.55%, and 3.23% respectively.

Optimism continued into the European session, where a lack of local data forced investors to take their cue from Asia. USD weakness saw the Euro and the Sterling make considerable headway overnight as volatility caused both pairs moved back through key technical levels. Equities were also stronger in Europe, though not quite to the same degree as Asian bourses.

Further reading:  US jobless claims 360K – Disappointment, but the dollar is higher