Subtitle: When good things happen to bad currencies
In the bad old days, like a month ago, USD/JPY used to go down the worse the news in Japan got.
Why?
Japan is a huge net exporter of capital and when things go badly at home, capital tends to flow back home and out of overseas investments to sure up the domestic books.
That same phenomenon is happening in EUR/USD to some degree. European banks, in particular, are pulling in their horns. They are shedding overseas investments, selling subsidiaries and returning capital from far-flung international operations as they concentrate scarce resources on markets closer to home.
As capital flows back to Europe, EUR/USD tends to find a bid, even amid bad news. Even if money is flowing out of emerging markets, like Brazil or developing Asia, the liquidity in the markets is concentrated against the dollar, not the euro.
That means there will be a bid in USD/BRL for instance, as banks pull money out of that market and a subsequent bid in EUR/USD as the euros are repatriated.
Helps explain why EUR/USD seems unnaturally bid at times. It is.