Market Drivers for August 26th, 2013
UK on holiday – markets very quiet
Aussie holds best on rally in Shanghai
Nikkei -0.18% Europe -0.57%
Oil $106/bbl
Gold $1394/oz.

Europe and Asia:
NZD Trade Balance -774M vs. -18M
JPY CSPI 0.4% vs. 0.4%

North America:
USD Durable Goods 8:30

With UK on public holiday and European economic calendar barren currency markets were very quiet on the the first trading day of the week. Most of the majors essentially flatlined as markets appear to be in the final week of the summer stall before coming back to life at the start of September.

Although Bloomberg reports that many European heads of the state including Hollande in France and Letta in Italy remain on the job as they deal with the economic problems at home, market participants are decidedly less productive with many traders on both side of the Atlantic off to the beach this week as the calendar remains thin and the real barrage of economic data begins in September.

Therefore this week in the currency markets may be the final calm before the storm as the next week brings a slew of important economic news including US NFP data which could be the determining factor in Fed’s decision to taper early or not.

Meanwhile in today’s action the markets were essentially moribund with both euro and cable carving out very narrow 30 pip ranges as traders were content to let prices lie on a semi holiday in European dealing. Tomorrow’s German IFO report will be the key release from the region this week, and all indications are that it should surprise to the upside as PMI data and sentiment data continue to be supportive.

A strong reading in IFO could help the EUR/USD to rally back through the 1.3400 level, but the pair remains capped at 1.3450 and is unlikely to cross the key 1.3500 barrier this week unless the currency market becomes increasingly convinced that the Fed will indeed hold off on any tapering of QE.

The only data point of note today, comes in North American session with the release of US Durable Goods report. Markets anticipate a 0.6% increase in the core number and if the data meets or beats expectations it should help USD/JPY rally back towards the 99.00 level. The pair has been relatively weak today, opening lower in Asian session trade, then rallying along with the Nikkei, only to give up its gains once again as Nikkei sold off.

The price action in USD/JPY improved at the end of last week as the pair was able to climb back above 99.00 on better risk sentiment and US yields but its course remains very data dependent on US economic results, as most of the Japanese policy actions have already been discounted and PM Abe’s “third arrow” attempts at restructuring Japanese economy have been met with stiff resistance from all the constituents and appear to have stalled.

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