US Dollar Heavier on Cautious Trading Ahead of FOMC Minutes - 21.8.2013

The greenback eased against its major counterparties in yesterday evening trading ahead of FOMC meeting minutes tonight. The US dollar index drew a support line at 80.72 and then scaled back to 81.03 on short covering. US equities managed to close mostly in positive light, S&P 500 was up by 0.38%, Dow Jones dropped by 0.05% and NASDAQ advanced by 0.68%, with stocks underpinned by stronger than estimated earnings.

Asian equities were under pressure early in their session with Hang Seng and Shanghai composite being in negative territory. NIKKEI 225 was losing earlier as investors were cautious ahead of FOMC meeting as well as on reports that Japan’s government raised the Fukushima severity of the leak to Level 3 in an 8 level international scale. However the NIKKEI recovered back previous lost territory to close higher by 0.21% on Haruhiko Kuroda comments that the Bank of Japan has the capacity to enhance further monetary policy. The USDJPY also dropped to support at 96.90 as investors were buying safer Japanese Yen but then as NIKKEI started recovering the pair retraced up to 97.65.

The common currency spiked above the top of the longer term range at 1.3417 against the US dollar but the daily candlestick of Tuesday did not close above the top of the range with prices returning back to 1.3410. Sideways trading prevails at the moment in the EURUSD and could go lower on technical weakness or could to remain like that until the release of the FOMC meeting minutes tonight. Market participants are expecting Fed monthly bond buying program reduction in September which is currently sized at $85. It is speculated that the Fed would decrease asset purchases to $75 bln per month but further clues are anticipated to be revealed tonight. Also it is expected that the Fed once more would stress out that asset purchases and interest rates would follow a separate path with interest rate projected to remain at record low levels until 2015.