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Forex & Equities: EUR/USD, USD/JPY

Posted by Akhilesh Ganti on Aug 20, 2014 10:59:00 PM

The US Dollar continued its advance in the Asian session, albeit at a more measured pace, as the market digests the ramifications of the FOMC Minutes and prepares for Yellen's speech from Jackson Hole on Friday. China's HSBC Flash Manufacturing PMI was the only noteworthy economic data release and it came out at 50.3 as it missed estimates of 51.7. AUD/USD, which had been trading around 0.9270, immediately fell about 30 pips before stabilizing.

{charts: WWM CurreneX}(click to enlarge)


Dollar bullishness revved up after the release of FOMC Minutes which brought Euro bears out of hibernation after key support at 1.3300 gave way. The differing, almost polar opposite, outlooks for the respective economies are at the crux of the matter as the markets expect future monetary policy paths to result in widening interest rate differentials between these two currencies.    

Eur 082014 W

The break of 1.3300 and the subsequent decline to 1.3250 coincides with the 38.2% retracement level of the move from 1.2048(weekly low 7/2012) to 1.3994(weekly high 5/2014). The momentum generated suggests that, unless there is a surprise from Jackson hole, key support at 1.3104 will likely be targeted in fairly short order especially if eurozone growth metrics continue to disappoint.


Dollar/Yen, which has been mired in a fairly tight trading range for almost 8 months, breached moderate resistance at 103.10, aided by expectations of a hawkish FED, and reached resistance at 103.80/90.  

usdjpy 082014 w

Support from Japanese importers, prospects of higher US yields which emboldens carry traders, and the growing notion that BOJ has to implement further stimulus measures are all contributing to this pairs rise. That said, 104.16 remains the key resistance that must be breached for this momentum to continue in the short term. A successful breach would bring this year's highs at 105.50 into focus. Support(s) at 103.10 and 102.50 should stem declines for now.

Topics: Asian session, Ranges


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