EUR/USD Facing Resistance, Look Into Italian Auction

Markets are generally steady in Asia today. Euro got a lift yesterday against dollar but failed to break through 1.2589 resistance yet. EU president Van Rompuy said after meeting with Spanish prime minister Rajoy that the Eurozone is ready to act "on short notice" to aid Spain, hinting that funds for the countries banking sector could be granted as soon as possible. Meanwhile, the common currency was also given a boost by solid bill auction in Spain.

While all markets await the Jackson Hole symposium in US, focus will temporary be on Italian bill auction today as the treasury is set to sell up to EUR 7.5b in 6-month bills. A successful auction in Italy could pop EUR/USD through the mentioned 1.2589 resistance.

Elsewhere, BoE MPC member Posen urged Fed, ECB and BoE to act together in a "targeted way." Posen said Bernanke "should announce" more QE at the Jackson Hole symposium this Friday and he believes that another round of stimulus "could be very effective." He noted that US still "got mortgages to restructure, and buying and selling securitized mortgages is the main way they can affect this."

Regarding ECB, he said that "targeting Spanish and Italian debt would be the right thing to do" and he urged ECB to "stop the panic in the sovereign bond market." Regarding BoE, he said that starting the quantitative easing program earlier "could have made a difference to the outcomes for the British economy."

BoJ Deputy Governor Nishimura urged central banks to stimulate growth using unconventional measures as they are facing "enormous challenges, particularly those in advanced economies." And, options for traditional monetary policy have been "exhausted." He noted that while central banks are "pursuing the most unconventional policies ever imagined," there is "still room in this direction for further easing of monetary conditions to support the economy."

He said that Japan's low-interest loans to banks for lending to innovative and growth-oriented areas are "intended to be a catalyst for financial institutions willing to lend to various private-sector initiatives that attempt to overcome structural headwinds and will enhance potential growth in the medium to long run." He saw UK's "Funding for Lending" scheme having a similar objective.

As for today, Swiss KOF leading indicator is expected to be unchanged at 1.43 in August. German CPI preliminary reading is expected to rise to 1.9% yoy in August. Canadian IPPI and RMPI will be released. US Q2 GDP is expected be revised up to 1.7% annualized growth in secondary reading. Pending home sales is expected to rise 1.0% mom in July. Fed will also release Beige Book economic report.