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Today, the President of the European Central Bank vowed to preserve the continent's monetary union. Draghi said that the "ECB will do whatever it takes to preserve the euro," within the EU mandate, apparently providing the assurance markets needed to rally. Draghi said that the ECB already has the mandate to intervene and that he would do all that it takes.
Draghi said that “and believe me, it will be enough”. In addition, when referencing the European bond market he commented that “to the extent that the size of these sovereign premia hampers the functioning of the monetary policy transmission channel, they come within our mandate”. These comments are the strongest we have heard from the central banker and provide significant reassurance that the ECB will not simply sit idly by.
Markets immediately responded on a positive note. The euro had tumbled against the dollar to trade close to 1.21 when the Draghi made his statements within minutes the EUR/USD had surged over 100 pips and within a short spread of time broke through the 1.23.
After weeks of negative sentiment, since the traders became disillusioned with the EU on July 9th when the Finance Ministers failed to initiate the new banking program announced by the EcoFin Summit on June 29th, speculators had shed risk and turned anti euro.
The USD had been very strong as of late as the negative eco data from the US, helped fuel the rumor that the Federal Reserve would pull out the big guns at its meeting on July 31 and August 1, 2012.
In a surprise turn around today, US eco data surprised economists. Durable goods showed business cut back on orders for long-lasting U.S. factory goods last month if aircraft and other transportation equipment are excluded, but overall durable goods exceeded expectations. The mixed data shows that U.S. manufacturing continues to suffer. The Commerce Department said that orders for durable goods rose a seasonally adjusted 1.6 percent in June, but orders actually fell 1.1 percent, the third decrease in four months, without transportation.
The most recent government employment data, released Thursday, was met with some skepticism because of a one-time hiring shift by U.S. auto manufacturers.
The Labor Department reported that applications fell to a seasonally adjusted 353,000, down from a revised 388,000 the previous week. It was the biggest drop since February 2011.
The four-week average, a less volatile measure, declined 8,750 to 367,250, the lowest since the end of March. However, factories that are usually shut down by auto makers were kept open this year because of demand, which skewed results somewhat.