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US unemployment claims dropped to 292K. This is a huge surprise. They were expected to rise from 323K (before revisions) to 332K now. This huge drop could be a one time statistical error, as it is an outlier. However, even if it corrected to 200K-310K, the figure is very encouraging and cements QE tapering in less than a week.

The dollar was strengthening towards the publication, recovering from the losses seen in recent days and now extends its gains. — updates coming —

Data

  • Update on jobless claims: the drop in jobless claims is blamed on two US states that upgraded their computer systems. This is the first drop below 300K since 2007, but it will surely be revised higher.
  • Continuing claims dropped to 2.87 million, also a big surprise: they stood on 2.94 million last week. The break below 3 million now seems sustained.
  • Import prices remained flat. They were predicted to rise by 0.6%.

Currency reaction

  • EUR/USD dopped as low as 1.3256. It was already on a slide earlier as EZ industrial output disappointed with a big drop. This ended the nice euro rally.
  • USD/JPY rose back above 99.50. There is still a lot of uncertainty about the sales tax.
  • GBP/USD finds it hard to hold on to 1.58, a line it struggled with earlier. The pound dropped before the BOE testimony, and advanced afterwards. Carney mentioned that rate hikes will precede the unwinding of QE.
  • AUD/USD only temporarily dipped below support at 0.9233, but recovered quickly. It fell to this line after weak employment data.
  • USD/CAD continues recovering and trades at 1.0322. In Canada, the  NHPI rose by 0.2%, exactly as expected. The fall in oil prices is also felt.

Further reading:  Fed tapering could trigger new financial crisis