The euro is on a tear this morning, up more than 1% against the U.S. dollar and Japanese Yen. This is the strongest one day gain for the currency since the beginning of the month. A better than expected Italian bond auction, rapidly falling Spanish bond yields and reassuring comments from ECB President Draghi drove the currency pair sharply higher. Given the deeply oversold nature of the euro, short covering contributed to the move by exacerbating the rally in the currency. ECB President Draghi pledged to do “whatever is needed to preserve the euro.” He called the last EU Summit a “moment of recognition” and said he believed the euro is “irreversible.” While none of these comments were new, the market really needed to hear a vote of confidence from the head of the ECB. His interpretation of the ECB’s mandate to save the euro at all costs led everyone to believe that the central bank will step up their efforts to support the euro through purchases of Spanish and Italian bonds or pushing for sharing national sovereignty. Draghi’s comments single handedly drove the EUR/USD and European stocks higher and bond yields lower. Spanish 10 year bond yields are now back below 7% after dropping 40bp this morning. This is a huge move that immediately alleviates pressure on Spanish fiscal finances but only if yields remain below 7%.

Positive comments from Draghi lifted not only the euro but also eased safe haven flows out of the U.S. dollar and Japanese Yen. Despite mixed U.S. economic data, the greenback is trading lower against most of the major currencies. First time jobless claims fell to 353k from 388k in the week ending on July 21st. While claims are normally more volatile in July due to auto plant shutdowns, this is a very good number that will fuel hope for a stronger recovery in non-farm payrolls. With the 4 week moving average dropping to its lowest level since April 2012, the latest jobless claims reports are consistent with payroll growth in excess of 100k this month. Durable goods orders also printed much better than expected, rising 1.6% in June, matching the prior month’s upwardly revised number. Unfortunately the details of the report was not nearly as encouraging because excluding transportation, orders fell 1.1%. For the Federal Reserve, the jobless claims report was all they needed to see to ease their concerns about the need for QE3. Pending home sales are scheduled for release at 10:00am ET, a much smaller rise is expected for June.