AUD/USD: 0.9325EUR/USD: 1.3360An apparent easing in the Russian tensions and some positive US housing data combined to underpin the dollar today in generally quiet trade. More of the same could be in store ahead of the FOMC Minutes (Wed), and possibly until Jackson Hole (Friday), although today will see the RBNZ Inflation outlook and the RBA Minutes, and then later on, the UK and the US CPI data, which could create some volatility. Overall another range bound session looks to be the most likely outcome, while waiting for Yellen and Draghi later in the week.
The Euro had a quiet session, capped by offers at 1.3400 and eventually drifting a bit lower to sit at around 1.3360. The US$ is a bit firmer today, helped by mildly higher bond yields, after the NAHB Housing Index came in a little stronger than expected and by an apparent easing in the Russian/Ukraine tensions.
Today’s focus will be on the US CPI, but traders generally look like sitting on their hands, waiting for the FOMC Minutes late in tomorrow’s session and then the Jackson Hole Symposium on Friday, where Yellen is likely to reflect her usual cautious stance. More interest is building as to what Mario Draghi may say, with the possibility of further easing, and potentially QE, in the EU and which will probably keep the Euro in a fairly tight range until then. The EU Manufacturing PMI’s on Thursday might provide further guidance on that happening but no-one expects any positive news to come from them.
Technically the recent 1.3335/1.3415 range looks pretty safe for the coming session, although the short term indicators now tend to suggest that we could see a mild drift lower form the current 1.3360 pivot.
I would be very surprised though to see the Euro break the strong support in the 1.3335/40 area today though, unless the US CPI is much stronger than expected (exp 2.0% yy July), or probably ahead of Friday's Jackson Hole summit.
If/when the Euro does head lower, large stops are said to lie below 1.3330, which if triggered, would drive it towards 1.3294 (7 Nov ’13 low) below which, more distant targets are to be seen at 1.3228 (61.8% of 1.2754/1.3993) and then eventually at 1.3104 (6 Sept ’13 low).
On the topside, minor resistance now lies at 100/200 HMA’s at 1.3370/75 which may well cap it today. A break above here would suggest a return to 1.3400, and if this were to get taken out there is further strong resistance at 1.3415 and then again at the 8 Aug high at 1.3433. Above there, which looks a bit unlikely today, we could then be in for a run up towards 1.3470 (38.2% of 1.3699/1.3332) and possibly 1.3485 (23.6% of 1.3993/1.3332/ daily Kijun). Above this would see more stops triggered and could force a squeeze up towards 1.3500, which previously acted as strong support and should now provide good resistance. A break of 1.3500 would test 1.3525 (38.2% of 1.3993/1.3332), beyond which could head up to the base of the previous wedge formation (blue line), currently at around 1.3575.
As long as Russia/Ukraine tensions do not escalate, which would send investors back into safe-haven US bonds and probably push the dollar lower, look for a fairly tight session today, and use 1.3345/1.3385 as a guide, at least until the US data.
Selling Euro rallies remains the longer term preference, looking for a break towards 1.3300 and lower.
Economic data highlights will include:
EU Current Account, US CPI, Housing starts
Jim LanglandsFX Charts www.fxcharts.com.au
