US Dollar in Sideways, Aussie Negative Bias Resumes, German IFO Expected to Improve - 27.8.2013

The greenback did not move much from yesterday; it was volatile during Durable Goods Orders release on Monday but mainly the US dollar index remains in 81.44/8.18 short-term tight range. US Durable Goods Orders dropped by 7.3% in July, much more decline than anticipated at 3.0% while in June Orders rose by 3.9%. The US dollar index dipped suddenly from 81.44 to 81.24 but then quickly recovered back its losses and extended further into previously mentioned sideways zone.

There is much of discussion about asset tapering and recently the NABE survey indicated that only 10% of its responders expect that FED would begin lowering asset purchase program at the 3rd quarter of 2013 while 39% expect that in the 4th quarter of 2013. Thus, traders are cautious at their trading; we believe that the current market price for the US dollar incorporates asset tapering on Sep. 18. Should that expectations fade the greenback would lose value and perhaps could revisit support at 80.72.

The Japanese Yen strengthened on risk averse after the weaker US Durable Goods Orders report. US indices closed in negative ground followed by Asian indices with NIKKEI225 closing lower by 0.69%. In addition, NIKKEI was weighed by Japanese government strongly supporting implementation of Sales-Tax increase from 5% to 8% in April 2014. The USDJPY dropped to key support at 98.04 and as of typing bounced slightly up, currently at 98.18.

The Aussie against the US dollar is falling towards support at 0.8932, below that level follows the 3-year low at 0.8850. Previous week meeting minutes revealed that RBA is willing to further reduce interest rates below 2.50% as the economy goes through a transition period. The mining sector significant role to growth declines, according to Governor Glenn Stevens, with demand from other parts of the economy expected to improve as Aussie depreciates.

Looking ahead, investors are focusing on German IFO business climate expected to increase to 107.1 for August from 106.2 in July. Recent European data revealed that Eurozone is on the right path to recovery supporting the common currency. One more positive sentiment indicator today, would further support the Euro and likely to drive it back above 1.34 against the US dollar.