Steady Start of the Week with Major Currency Pairs in Sideways Trading - 26.8.2013

Currency market started the week steadily with most of the pairs fluctuating in sideways zones. The greenback has been barely changed on Monday morning with the US dollar index remaining around 81.33 while on Friday evening dropped sharply from 81.56 to 81.18 on disappointing housing data. US New Home Sales decreased to 394K in July, substantially more than expected and down from 455K the previous month. The latter could weigh further on the greenback however expectations that asset purchase facility would reduce on FED September 18 meeting, underpins the US dollar.

At the Jackson Hole Symposium academics referred to asset tapering saying that the FED should reduce the $45 bln monthly treasury purchase and continue the $40 bln monthly mortgage purchase. Treasury yields rose to record peak at 2.90% on speculation of cutting down asset purchases on September and as Lawrence Summers gains chances for Bernanke successor as FED Chairman.

Concerning Europe, the common currency against the greenback recovered back to resistance at 1.3408 on Friday to ease back early on Monday around 1.3379. Later on the week Euro zone Unemployment Rate would be released expected to remain unchanged at 12.1% and CPI to drop to 1.4% from 1.6%. Recent data revealed that Germany, Europe’s largest economy is increasing its growth rate and PMI data are improving further, strengthening recovery. Regarding monetary policy of ECB, on one side has low inflation, providing some room for further easing however on the other side recent upbeat data offset that chance. Technically the Euro was limited by daily top of the range at 1.3451 and moved to support at 1.3297, currently found resistance at the 61.8% of 1.3451 to 1.3297, at 1.3393 and thus we consider corrective move has ended.

Lastly, the USDJPY drew resistance at 99.10 near major psychological resistance at 100 and turned its bias to the downside, falling to support at 98.41. BOJ governor’s comments that highly aggressive monetary policy starts to show results as job sector improves and inflation expectations appear to rise with no risk to financial stability, eliminated speculation for further monetary easing inducing the Yen to recover. Thus we consider the USDJPY could breach the support at 98.41 falling lower towards downside boundary at 97.76.