The EUR/USD continued to add to its gains, climbing another 26 pips to close at $1.3391. Volatility is likely to increase as we progress throughout the day, with the FOMC Economic Projections due out at 18:00GMT, followed by the Fed Policy Statement and press conference at 18:30GMT.

Kathy Lien of BK Asset Management discussed some possibilities of what market participants can expect as we head into the conclusion of the FOMC Meeting.

The Federal Reserve will be making one of its special quarterly monetary policy announcements on Wednesday and based on the price action of the currency, equity and bond markets, there is very little consensus on what is expected from the central bank.

In concluding her view, Lien went on to add price action for the pair will likely be dictated by how Bernanke will phrase his view of the tapering process. Lien added,

While there are

In what promises to be an extremely busy and volatile week for EUR/USD, the pair has started out on a strong note, climbing 21 pips to close at $1.3365. Analysts are already looking towards the upcoming FOMC meeting that concludes on June 19th as a major catalyst, which may very well play an important factor in dictating price action as we approach the release.

Analysts at Rabobank went on to discuss a few reasons why they believe the market is so on edge about what the Fed will have to say regarding tapering asset purchases.

The market uncertainty about the pace of QE3 is caused not only by the wide divergence of views within the FOMC, but also by the mixed signals that the economic data are giving. In fact, several FOMC members have admitted that they will need to see more data to get a clear picture

After dramatic moves yesterday (Tuesday), the global capital markets are stabilizing today. The S&P 500 recovered after gapping lower at the open Tuesday. Although the close was not particularly constructive, it is called to open firmer.

Asian equities were heavy, though China, Hong Kong, Taiwan and the Philippine markets were closed for public holidays. The MSCI Asia-Pacific was off fractionally. After a lower opening, European bourses have turned higher, helped by a positive U.K. employment report and an unexpected 0.4% rise in the euro area April industrial output. Global bond markets have also stabilized. JGB prices are little changed and the peripheral European bond yields are mostly lower.

The yen recorded what looks to be its biggest advance in three years Tuesday and those gains have been shaved today. The dollar was pushed to almost JPY95.50 Tuesday and buying was seen in Asia and into the European morning before running

The EUR/USD finished the session sharply higher, surpassing the critical resistance level near $1.3300 and closing up 57 pips at $1.3312 (highest daily close since February 19th). In what was a quiet day of economic releases from both the EU and U.S., analysts were searching for catalyst to help explain the impressive strength.

Derek Halpenny, European Head of Global Markets Research at Bank of Tokyo Mitsubishi UFJ, was pointing towards recent hawkish comments from ECB President Draghi as an initial catalyst for the sharp move higher. "The euro remains incredibly solid and has advanced further versus the dollar. ECB President Draghi did speak yesterday and stated that rates would rise once the eurozone economy improved - a statement of the obvious." In further discussing his views, Halpenny went on to comment, "We suspect that the current euro demand is probably emanating from the unwinding of long high yielding currency

June has been a good month for the euro and the bulls keep taking money from the bears. To date the EURUSD (FXE) has been moved up around 300 pips. The daily chart suggests there may be more.

Europe's economic malaise had attracted an abundance of sellers in the euro, with concern the crises would continue. Recently Evans-Pritchard offered this opinion in the Telegraph.

"...the eurozone is sticking to the same mix of self-defeating contractionary policies that have tipped the region back into a double-dip recession, with seven quarters in a row of falling GDP, soaring unemployment, and an ever starker divergence with the United States."

According to the COT reports the highest speculator net short in the euro went up to 109,257 contracts on the 28th of May. In the most recent report, the net speculative position has been reduced to 74,832 contracts. During this period from

How can both sides be right and wrong at the same time? Well, it's economics, for a start. And if we're talking of the dismal science, then timing is a factor too. No wonder that the debate about austerity, which has been called everything from "the greatest bait-and-switch in history" to the only path to enlightened policy because "spending cuts can improve both the budget and the economy."

Whatever you think about austerity, it's no academic issue. Just ask the Greeks, who are again under pressure to keep the big squeeze going. And in Britain, "austerity could last for another SEVEN years." The inclination to cut first and consider the effects on the street later has unleashed a "groundswell of anger" throughout Europe.

Opinions are passionately divided, but surely there's a clear path for sorting out who's wrong, who's right, and how and when to tell

The German Constitutional Court will hold hearings today and tomorrow on the ECB's Outright Market Transaction program announced last year, but yet to be implemented. In fact, documents to explain the precise procedures and operation of OMT have yet to be published.

The complaint has been registered by several politicians, include euroskeptic member of the German parliament who is in the CSU, the Bavarian sister party to the governing CDU and the Left Party, with the support of some 35,000 Germans, not least of whom is the Bundesbank President Weidmann, who has made no secret of his opposition. Weidmann will present before the Constitutional Court.

Yet, do not be mistaken. This is hardly a case of Germany vs the ECB. Asmussen, the German representative on the ECB's executive board will also speak before the Constitutional Court, defending the OMT.

The Constitutional Court conducts the hearing this week and a ruling

The USD/JPY has experienced a fairly volatile Asia session, at one point declining all the way down to 97.78 before finding support and currently consolidating near the 98.30 level. The main catalyst for the sharp drop appeared to come right after the Bank of Japan announced it would not be making any changes to current monetary policy.

Our analysts noted although many had expected the policy to remain unchanged, there were rumors circling of possible adjustments to help control the recent government bond market volatility which may have helped spark the initial declines when market participants saw the adjustments to current policy were not made. "The Bank of Japan monetary policy meeting offered no particular response to the latest episodes of market volatility in JGB, which includes the failure to change maturities of fixed rate operations in order to ease bond market volatility. Also, there had been some rumors

As the European Union struggles with rising unemployment it now has to face a future of increased competition from the Japanese as they actively devalue the yen. The new government in Japan, under the Premiership of Shinzo Abe, has managed to devalue the yen by around 20% so far. In the short term, this devaluation should boost Japanese exports as their goods are available at a substantial discount. This action mirrors that of the United States as it continues with its program of Quantitative Easing. The United Kingdom has also joined in this 'race to the bottom' and has managed to reduce the value the British Pound.

The European Central Bank (ECB), under the guidance of Mario Draghi, cut interest rates to a new record low in May and said it would act again if necessary. However, in this tit-for-tat, cut-for-cut environment, the ball appears to be back in

The EUR/USD traded in a narrow range today (Tuesday) but still managed to finish the day in positive territory, closing up 11 pips at $1.3081. Economic data out of the both the EU and U.S. was light, but will pick up as we approach the end of the week with the ECB Interest Rate Decision on Thursday, as well as U.S. Non Farm Payrolls on Friday. However, before the real fireworks begin, some analysts are pointing to tomorrow's ADP data out of the U.S. as a possible catalyst for tomorrow's price action.

According to Sean Callow at Westpac:

We have the ADP report plus non manufacturing ISM jobs components tonight. There is a great deal of focus on jobs data in the U.S. given recent speculation about the Fed tapering its asset purchase programs. ADP disappointed in April but has not had much directional success in picking payrolls outcomes. The

The EUR/USD finished Monday sharply higher, at one point trading all the way up to $1.3107 before leaking lower later in the day to close up 76 pips at $1.3070. Some analysts were pointing towards weaker than expected ISM data from the U.S. as the main catalyst for the bullish move in the pair. Economic data out of the U.S. will slow down a bit the next few days, but volatility is certain to pick up as we approach the ECB Rate Decision on Thursday, as well as the Non-Farm Payrolls number due out of the U.S. on Friday.

According to Sean Callow at Westpac:

The U.S. dollar was smacked across the board as the surprisingly weak ISM manufacturing survey and construction spending suggested the Fed would not alter policy any time soon. The dollar Index fell -0.9%. Its main component EUR had been very close to its London session

The EUR/USD finished the week on a negative note, closing down 48 pips at $1.2996. However, the pair was able to finish of the lows set earlier in the day down at $1.2944. Analysts were pointing towards recent economic data out of Europe as a catalyst for the weakness, particularly the CPI data which came in well below the ECB's 2% mandate.

According to an analyst at Rabobank,

Retail spending in Germany was a bit weaker than expected in April, falling -0.4% MoM. There were also some revisions to recent data and the profile of spending through recent months now shows that spending has risen 1.8% YoY whereas the market had anticipated a 1.1% increase. This 1.8% YoY rise is modest growth, but the best annual reading since June 2012. Not a strong message but consistent with our view that the economy is not spiraling downwards and that economy-wide growth

There are four developments to note before the new week's trading begins.

1. China's official May manufacturing PMI was reported better than even the most optimistic forecaster in a Bloomberg survey at 50.8. It was 50.6 in April. Recall that HSBC's flash version, which tends to be more representative of small businesses, show the first sub-50 reading (49.6) since last October, giving rise to fresh concerns about a slowdown in the world's second largest economy. The final version is due out early Monday in China (as is the official non-manufacturing PMI).

Some details of the official measure are worrisome, even if the headline surprised. The employment sub-index remained below 50 for the 12th consecutive month. New export orders fell for the fourth time in five months. The small business index, which is more similar to the HSBC survey, fell to 47.3 from 47.6.

The problem with China's manufacturing is

The EUR/USD ended the day sharply higher, shaking off less than stellar economic data out of Germany (both CPI and Unemployment Change figures missed) and closing up 88 pips at $1.2940. Expect volatility to be high again tomorrow, with a number of Consumer Confidence figures to be released out of Europe, followed by GDP, Pending Home Sales, Jobless Claims, and the PCE Deflator out of the U.S.

According to analysts at Rabobank,

unemployment in Germany increased by 21K in May, more than a rise of 5K expected. Unemployment started rising in April 2012 and has increased every month except one since. Through this period, unemployment has increased by a cumulative 103K. Germany also released the Preliminary estimate of the CPI for May. It was a bit above expectations with prices rising 0.3% MoM. The annual rate jumped to 1.7% YoY from April's 1.1%. But this is not of concern

The EUR/USD finished the day sharply lower, down 81 pips at $1.2852. However, the main story of the day was the sharp rise in U.S. Treasury yields, which finished at the highest level in a year (10 yr yield rose 16 bps to 2.17%). The catalyst for the move higher appeared to be better than expected economic data out of the U.S., specifically the Consumer Confidence Board number which came in at 76.2 vs. 71.0 forecast.

According to Kathy Lien at BK Asset Management,

at a time when the rest of the world economies are on shaky ground, U.S. economic data continues to surprise to the upside, making the dollar extremely attractive to global investors. Consumer confidence surged to its highest level in 5 years. Thanks to the improvement in the labor market and the persistent rise in stocks, the Conference Board's measure of consumer sentiment rose to 76.2

Kenneth Rogoff argues that there is no simple Keynesian solution to the long recession in Europe:

There is no magic Keynesian bullet for the eurozone's woes. But the spectacularly muddle-headed argument nowadays that too much austerity is killing Europe is not surprising. Commentators are consumed by politics, flailing away at any available target, while the "anti-austerity" masses apparently believe that there are easy cyclical solutions to tough structural problems.

This recession has now lasted longer than the depression in the 1930s. Rogoff is right, of course, the economic problems in the eurozone largely result from the euro, which is functioning as the Gold Standard in the 1930s which leaves the periphery without policy levers to pull them out of the mess.

Even if the peripheral countries would want to stimulate their economies, they can't. They can't devalue, they cannot inject a monetary stimulus and the money supply is

The EUR/USD traded in a narrow range today, closing up five pips at $1.2933. The muted price action wasn't surprising given the fact both the U.K. and U.S. markets were closed for holiday on Monday. However, although the EUR/USD price action was fairly quiet, some analysts believe it is worth noting there was some impressive action in the European stock and bond markets during the previous session. Although the correlation between the EUR/USD and risk assets hasn't been as high as previously, it's still worth noting as New York and London are set to re-open today (Tuesday).

According to analysts at Rabobank,

investors turned positive in Europe on Monday, pushing the Estoxx 50 up 1.1% to close at 2,795. The same positive tone was evident in bond markets with yields on Italian and Spanish debt falling about 8 bps. The yield on Italy's 10Y closed at 4.04% and on Spanish

The euro/USD (FXE) was up slightly last week despite weakness in the European sovereign bond market. However, the big news in global markets came from outside Europe. Investors were focused on comments from Federal Reserve Chairman Ben Bernanke about the possibility of tapering QE as well as the jump in Japanese bond yields and weakness in the Nikkei (NKY). The move in European sovereign bonds seemed to follow similar moves in Japan and the US and does not seem to reflect European specific issues. Going forward, I expect the euro and European assets to be mainly driven by the increasing likelihood of further action by the ECB, which may coincide with the Fed's tapering. This could result in a weaker euro and stronger European equities (and possibly bonds).

ECB Watch

Pimco recently came out with an interesting analysis of the dynamics in Europe: How to Turn the ECB Straggler into

It was a volatile day for the EUR/USD, which was not surprising given the amount of economic data coming out of the U.S. during the previous session. To kick things off, we had Fed Chairman Bernanke's testimony in front of congress which started at 14:00GMT, which sent the EUR/USD on a roller coaster ride. Initially it traded as high as $1.2998 before sharply reversing all gains and closing down 53 pips at $1.2852. Later in the day, we received the the most recent FOMC meeting which gave the pair a small bounce but not near to recover from earlier losses.

According to analysts at NAB Global Markets, "investors looking for clues on U.S. monetary policy would have taken very different messages from Fed Chairman Bernanke's prepared testimony and his subsequent Q+A session. The formal presentation warned that, "a premature tightening of monetary policy could lead interest rates to rise temporarily

The EUR/USD finished the day moderately higher, closing up 25 pips at $1.2905 ahead of what is sure to be a volatile session with Fed Chairman Bernanke set to testify in front of congress at 14:00GMT. Furthermore, we will also see the release of the most recent FOMC minutes at 18:00GMT.

According to Sean callow of Westpac,"The U.S. calendar is dominated by Fed chairman Bernanke's testimony on "The Economic Outlook" to the Joint Economic Committee of Congress (10am NY time). He will deliver a prepared text then take numerous questions from both friendly and hostile lawmakers. Volatility over the course of his appearance seems assured, as markets try to quickly decide whether Bernanke is trying to dampen talk of reducing QE some time soon, is affirming such a view or remaining non-committal. USD should gain in the latter two scenarios but we still expect the first outcome - Bernanke