The EUR/USD spiked lower following the release of Federal Reserve Chairman Janet Yellen's prepared remarks for her semi-annual testimony to Congress.

The EUR/USD fell by nearly 50 pips to a low of 1.3628 before Yellen took her seat in front of the members of the Financial Services Committee.

Price action following the remarks suggested that traders may have been holding out for a more dovish Yellen and the possibility of more stimulus in the form of a pause in tapering. However, Yellen reiterated the Fed's commitment to reducing asset purchases although they were not on a 'pre-set course'.

The EUR/USD would turn around and reverse the entire decline to trade back around the 1.3675 mark as Yellen began taking questions.

Overall, the testimony had something to offer both types of traders - those looking for either hawkish and dovish comments. Yellen acknowledged the labor market recovery was "far from complete," defending that accommodative policy was appropriate.

Yellen also pointed out that emerging market vulnerabilities are less than in past episodes. Also hitting the newswires after Yellen's testimony were remarks by Fed member Plosser, who believes winter weather had a negative impact on the latest jobs data.

One particular remark by Yellen indicated the possibility of the Fed perhaps reconsidering its unemployment threshold in its forward guidance although she reiterated that "it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent".

"Those out of a job for more than six months continue to make up an unusually large fraction of the unemployed, and the number of people who are working part time but would prefer a full-time job remains very high. These observations underscore the importance of considering more than the unemployment rate when evaluating the condition of the US labor market," Yellen said.

JP

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