Next week, the market will be focused predominantly on the Jackson Hole Symposium which will start on Wednesday and end on Saturday. Fed’s Bernanke and ECB’s Draghi will be the main focus.

• Bernanke speaks  on  Friday at 10 AM.
• Draghi will be speaking at 12:25 PM. 

Other key events include:

• The Fed’s Beige Book which will be released on Wednesday at 2 PM. 
• Italy is scheduled to auction off 5 and 10 year notes/bonds on Thursday.

As far as economic data.

• In the US, national and regional housing data in the form of the S&P Case Schiller data on Tuesday, US 2nd quarter GDP revision on Wednesday (1.7% vs 1.5%), Personal Income and Personal Spending on Thursday. 
• In Germany, Geman IFO Business Climate on Monday, Employment on Thrusday and Retail Sales on Friday

I will be reviewing the week ahead on Monday at 9:30 AM ET, with a webinar.  To register please go to:

https://www1.gotomeeting.com/register/919322752

You can register for “The Traders Course with Greg Michalowski” webinars on Tuesday and Thursday (4 PM ET) by going to:

TUESDAY, AUGUST 28th at 4 PM: https://www1.gotomeeting.com/register/223459184  
THURSDAY, AUGUST 30th at 4 PM: https://www1.gotomeeting.com/register/301216344

Good weekend to all.  Good fortune with your trading next week.

Greg Michalowski

• RTRS: ECB considering sovereign yield band
• Core durable goods orders -3.4% vs +0.7% exp
• MNI: Greece could be "temporarily" exiled from euro
• Bernanke defends QE in letter
• Spanish Deputy PM: Spain not in talks for aid with euro zone
• Spanish Deputy PM: No knowledge of when ECB may lay out bond buying plan
• Isaac looks less threatening
• Belgian business sentiment -11.8 in Aug vs -11.3 prior
• The latest CFTC positioning data
• S&P 500 gains 0.6% to 1411
• On week, S&P 500 down 0.5%
• CAD leads, EUR lags

The euro fell to the low of the day (1.2481) in the first hour of trading. The soft durable goods orders report raised expectations for QE3 and hurt the dollar. In addition, the bond-yield cap idea that was floated in Der Spiegel to start the week resurfaced in a Reuters report, boosting EUR/USD as high as 1.2561. As the day wore on, the euro slipped back to 1.2510. Choppy day.

USD/JPY continues to slowly (very slowly) eat into the post-FOMC minutes declines. The pair climbed marginally above Thursday’s high to 78.72. A quiet day in the bond market meant minimal volatility.

Cable trended lower for the second day after large gains early in the week. The close will be near 1.58 and it will be interesting if that level can hold at the weekly open.

AUD/USD hit small stops down to 1.0375 in early trading but the yield-cap chatter boosted risk assets, with AUD/USD climbing back to 1.0429 and then drifting back to 1.0409.

Gold $1669. Oil $95.93.

The S&P 500 gained 0.6% on Friday but it wasn’t enough to wipe out the weekly loss. The minor decline was the first negative week after six weeks of gains.

• JPY long position trimmed to 11K from 31K
• EUR short 124K vs 138K prior
• AUD long 87K vs 67K prior
• CAD long 51K vs 29K prior
• GBP long 8K vs 0K prior
• NZD long 16K vs 15K prior
• Data as of the close on Tuesday

Big move out of yen but otherwise the US dollar was dumped on every front. For a quiet time of year, there were some major changes this week, especially in the commodity currencies.

What are my Top 10 Lessons that I have learned during my 26 year trading career? Watch the respective REBROADCAST of Part 1 and Part 2 by clicking on the appropriate link below

The REBROADCAST of the Traders Course with Greg Michalowski

Topic: My Top 10 Trading Lessons. PART 1 from Tuesday, August 21st, 2012
TO VIEW: https://www1.gotomeeting.com/register/605992336

Topic: My Top 10 Trading Lessons. PART 2from Thursday, August 23rd, 2012
TO VIEW: https://www1.gotomeeting.com/register/479161344

Broad USD buying has knocked cable to a session low of 1.5805.

Cable surged earlier in the week after breaking above the three-month high of 1.5777 and crested above 1.59 yesterday before turning lower.

Former resistance at 1.5777 is now support with the 200-day moving average just below and the 61.8% retracement at 1.5763. Overall, the pullback should be viewed as healthy so long as it stays above these levels.

In the short-term, bid seen at 1.5800/05.

Back below 1.2525. Oil has fallen below $96.00. A close above 1.2480/90 is key for the bulls today…

With weekly trading winding down, traders are checking the latest updates on Tropical Storm Isaac.

By the time markets re-open on Monday, it will be clear if the storm will strengthen into a hurricane and shut down production or fizzle.

The latest indications show Isaac at a soften-than-anticipated strength but officials said it “will likely restrengthen when it moves over the Florida Straits and the eastern Gulf of Mexico.”

The latest indications are that even if it strengthens, it will be a Category 1 hurricane and miss most production and refineries.

After peaking late in the morning at $97.21, WTI crude has fallen a dollar. The lack of conviction suggests it will be a non-event, which is great news for cash-strapped US drivers.

Update: oil also under pressure from a report in the Petroleum Economist says the IEA has dropped its objections to releasing US/international oil reserves, and that the move could come in early September.

The S&P 500 edged higher to 1411, up nearly 10 points on the day.

USD/CAD is starting to turn lower in response but the pair to watch is probably USD/JPY as it tests the highest levels since the FOMC minutes. A rise above 78.72 may quickly stalled, however, with strong offers at 78.80.

The late summer bank holiday is this Monday, so the markets there will be closed (and our intrepid editors will be out), so it would not be surprising if solid chunks of the New York market take the day off as well, using up the last of those summer vacation days.

Expect quiet markets for the balance if the session. EUR/USD should find support ahead of 1.2525 and 1.2480 near-term.

1.2580/90 will cap.

The bold call comes after they downgraded their forecast for Chinese growth.

“At the moment commodity prices are down and China is still slowing. In the past we would have seen the currency weaker, that’s why we are calling for US95c by the end of the year.”

Warning: they also see the potential for a touch of 1.10 in the same period.

Traders often ignore markets that aren’t moving but sometimes stability is a tell-tale sign.

Take gold. After three days of strong gains and breaking to four-month high, gold is virtually flat today at $1670.

To me, that’s a bullish signal. If the market was weak, we would be seeing more profit taking among the longs who have been patiently watching gold ‘do nothing’ since May.

It’s too early to say this move is definitive but if gold can at least hold above $1660 on Monday, that would be a strong positive signal.

–Must Balance Benefits Of Non-Traditional Tools Against Costs,Risks

By Brai Odion-Esene

WASHINGTON (MNI) – Federal Reserve Chairman Ben Bernanke believes
there is still room for the central bank to act and support the flagging
U.S. economic recovery, but with interest rates close to zero, he
believes any additional support will have to come via non-traditional
policy actions.

In an Aug. 22 letter to House Oversight Committee Chairman Darrell
Issa obtained by MNI Friday, Bernanke argued that “there is scope for
further action by the Federal Reserve to ease financial conditions and
strengthen the recovery.”

“The monetary accommodation provided by the Federal Reserve has
substantially helped the U.S. economy by easing financial conditions
relative to the conditions that would have prevailed otherwise,” he
said.

Bernanke also made it clear that “monetary policy must necessarily
be set in light of a forecast of the future performance of the economy.”

The Fed chairman was responding to a letter from Issa dated Aug. 1,
in which the congressman asked that given the “extraordinarily” low
interest rate across the entire Treasury yield curve, can further easing
“cure” the nation’s sluggish growth and stubbornly high unemployment
rate.

Bernanke said that with short-term interest rates at historically
low levels, “additional monetary accommodation requires the use of
nontraditional policy tools, such as balance sheet actions or
communication about the likely future course of policy.”

He cautioned, however, that “the expected benefits of these tools
need to be balanced against their potential costs and risks when the
Federal Open Market Committee decides whether additional action is
appropriate.”

Still, he said the Fed is confident that it possesses the tools to
normalize monetary policy “at the appropriate time” as the strength of
the recovery grows.

Bernanke included his now oft-stated opinion that monetary policy
is not a cure-all, and stressed the need for policymakers “in many
different arenas” to carefully examines steps they could take to foster
“a more vigorous recovery.”

Bernanke went on to launch a staunch defense of the Fed’s actions
to-date to support the recovery, particularly its asset purchase
programs.

“By putting downward pressure on longer-term interest rates and
contributing to a broader easing in financial market conditions, these
asset purchases have helped to promote a stronger recovery than
otherwise would have occurred,” he said, adding that the Fed’s buys have
also forestalled “the possibility of a slide into deflation.”

Bernanke said the easing in financial conditions has promoted
economic activity through a variety of channels — including lowering
the cost of capital, boosting the aggregate wealth of U.S. households,
and improving the competitiveness of U.S. businesses abroad.

He noted that the initial phase of the Fed’s maturity extension
program — also known as ‘Operation Twist’ — is still working its way
through the economic system, adding that changes in monetary policy take
several quarters to achieve their full effect on economic activity.

The Operation Twist program was extended at the June meeting of the
Fed’s policymaking Federal Open Market Committee, and Bernanke said this
is still in the “very early phases” of having its effect on the economy.

“Because monetary policy actions operate with a lag, the stance of
policy must necessarily be set in light of a forecast of the future
performance of the economy,” he reiterated.

Bernanke added that “policymakers aim to ensure that the stance of
policy is appropriate, given the latest indicators regarding the state
of the economy and the health of the financial system.”

Many opponents of additional action by the Fed have cited future
inflation risk as a reason the central bank should stand pat, Bernanke
assured lawmakers in the letter that the FOMC is “keenly attuned” to the
risks of inflation and other factors that could affect the future
performance of the economy.

As for the now-constant accusation that the Fed’s actions are
hurting savers, Bernanke responded that an economy performing at its
highest level benefits everyone.

“The returns to long-term investment depend critically on the
vitality of economic activity, the pace of inflation, and the stability
of the financial system,” he said. “The Federal Reserve is striving to
promote these factors that bear so critically on economic well-being.”

** MNI Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,M$$CR$,MT$$$$]

Australian iron ore prices fell nearly 5% to below $100 for the first time since 2009.

RBA Governor Stevens noted that the investment pipeline is still strong for the “a year or two” but with prices nearly halved in the past 18 months the momentum is sure to follow.

AUD will be driven by the whims of risk sentiment over the next month but the underlying trend will be driven by commodity prices. One analyst is worried:

Glyn Lawcock of UBS said he expected further falls. ”Now that it has broken through $US100 a tonne, traders I speak to think the price could get a 7 in front of it,” he said.

Rinse/repeat.

• UK FTSE flat
• German DAX +0.4%
• French CAC +0.1%
• Spain IBEX +0.4%
• FTSE MIB -0.5%

Shares were down around 1% until late in the session when the ECB chatter cranked up.

The price made a BREAK and it ran higher.  The targets outlined in the prior post, were taken out quickly. Now support comes in at 1.2534 to 1.2538 (see chart).   The high for the day at 1.2567 is in jeopardy. The range for the day of 74 pips is still light.  The high for the week comes in at 1.2588.

Reuters headline Citing central bank sources.

Expect a denial via Bloomberg in 20-30 minutes…

There have been rumors since the Draghi press conference that the ECB could set a target for yields spreads over the benchmark German bund, so this is merely a rehash.

The move above 1.2525 takes the immediate downside pressure off of EUR/USD and strengthens the support at 1.2480/90. 1.2590/95 is resistance, the later level the 38.2% of the drop from 1.3487.

• In letter to Issa: Scope for further action
• Past QE has worked, helped promote recovery
• Operation Twist effects still working way through economy

Pretty consistent with what we know, but Mr. Market is a little excitable these days…

“There is scope for further action by the Federal Reserve to ease financial conditions and strengthen the recovery,” Mr. Bernanke wrote in a letter dated Aug. 22, a copy of which was obtained by The Wall Street Journal.

Full story here.

Scope for QE? How knew?

I guess the one thing you can take away from this is that the letter was written Wednesday, so the chairman does not necessarily agree with Bullard that the dovish minutes were “stale”.