Daily Report: Dollar Broadly lower on Expectations Fed May Take Actions in Sept

The greenback remained under broad-based selling pressure except against the Swiss franc after Friday's Jackson Hole central bankers gathering on speculation that Federal Reserve may take more monetary policy action next month. Although Fed Chairman Ben Bernanke provided no hints or details of any QE3 to support U.S. economic recovery last Friday in the central bank's annual symposium, he did say the central would extend its September FOMC meeting to 2-day to have more time for discussion on its options. As Bernanke also indicated the Fed is prepared to employ its tools as appropriate to promote a stronger recovery, traders are betting the central bank to announce new stimulus in September extended policy meeting. Another factor pushing the single currency higher to above 1.4500 level was a report from Sunday Times that officials from the ECB are considering to offer central guarantees over debt issued by banks. Having said that, some analysts are not convinced for the euro is able to head too far north partly due to the eurozone debt crisis and remarks from IMF's Lagarde who warned that the global economy is slowing down and in a dangerous phase. There are also rising concerns that eurozone debt crisis are spreading to the European banking system. Nevertheless, with Swiss National Bank keeps appearing to support and EUR/CHF and USD/CHF, euro's downside is likely to be limited at the moment. Offers at 1.4500 were cleared and stops at 1.4550 are within range with mixture of offers and stops tipped further out at 1.4600. Funds and UK names were seen buying euro this morning and bids are reported at 1.4500 and 1.4470.

Another focus for today is the selection of new Japan's Prime Minister, news just came out that former Finance Minister Yoshihiko Noda has been chosen by the ruling Democratic Party of Japan to be the party's leader, hence Noda is set to become Japan's next prime minister. Not much reaction yet in the spot market as traders still await new set of policies and measures to be announced by the new administration on how to stem yen's strength and handle the impact on Japanese economy. Despite surging to as high as 77.00 last week on expectations that Bernanke won't hint on QE3, the USD/JPY fell back to the launching pad last Friday to as low as 76.50. Exporters are still the major selling at the level around 77.00. Therefore, unless Japanese authorities show up again like earlier this month on 4 Aug for another round of yen selling intervention, it would be quite difficult to see USD/JPY trading comfortably above 77.00 level with offers from exporters lining up all the way from 77.10 up to 77.80 (every 10-points interval).

Meanwhile, the Swiss franc is the only major currency that traded lower against the greenback last Friday. Swissy rallied late last week in part due to the release of weaker-than-expected Swiss KOF leading indicator, plus remarks from Swiss Union saying that the franc is ‘massively overvalued'. Obviously there were rumors that the SNB took action to sell Swiss franc, USD/CHF and EUR/CHF rallied to as high as 0.8159 and 1.1735 respectively. Stops above 0.8020, 0.8040 and 0.8100 were finally cleared, although price then retreated from 0.8159, with SNB still sneaking around the corner, downside should be limited and bids are reported from 0.8050 down to 0.8030 and also at 0.8000. Traders definitely see the determination of the Swiss authorities to weaken the Swiss franc, there is also market talk that Swiss banks may start charging offshore CHF deposits which should also dampen the demand for franc.

Elsewhere, aussie continued to surge since last Friday on buying by real money accounts and big Japanese names, cleared offers ahead of stops at 1.0600, active buying in AUD/JPY by Japanese margin traders also seen helping to lift aussie. Although new home sales fell for the second straight month, the number also supported AUD as these weaknesses in housing and new home market leave room for RBA not necessary to cut rates in the meantime.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.4383; (P) 1.4442 (R1) 1.4556; 

EUR/USD's break of 1.4537 resistance is taking as the first signal that the pair is finally breaking out of recent consolidations. Intraday bias is cautiously on the upside for 1.4695 resistance first. Break will affirm the bullish case and target 1.4939 high and above. On the downside, though, below 1.4328 minor support will dampen this bullish case and indicate that consolidation from 1.4939 is going to extend further with another falling leg to 1.4054 and below.

In the bigger picture, EUR/USD is still trading above medium term trend line support from 1.1875 (now at 1.3941) and thus, rise from there should still be in progress. Break of 1.4939 should confirm rally resumption and should send EUR/USD through 1.5143 resistance towards 1.6039 high. However, considering that weekly MACD has been staying below signal line for some time now, a break below 1.3837 will have the trend line support, as well as 55 weeks EMA firmly taken out. That would argue that the rally from 1.1875 has indeed finished and will bring deeper fall towards 1.2873 support and possibly below.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
	EUR	German CPI M/M Aug P		0.00%	0.40%
	EUR	German CPI Y/Y Aug P			2.40%
12:30	USD	Personal Income Jul		0.30%	0.10%
12:30	USD	Personal Spending Jul		0.50%	-0.20%
12:30	USD	PCE Deflator Y/Y Jul		1.40%	2.60%
12:30	USD	PCE Core M/M Jul		0.20%	0.10%
12:30	USD	PCE Core Y/Y Jul		1.40%	1.30%
14:00	USD	Pending Home Sales M/M Jul		0.00%	2.40%