* Dollar/yen hovers below Friday’s near 3-week high
* Euro holds steady, dollar index little changed
* Data on U.S. durable goods due later on Monday
By Masayuki Kitano
SINGAPORE, Aug 26 (Reuters) - The dollar eased versus the yen on Monday, having backed away from Friday’s near three-week high after data showed a steep drop in U.S. new home sales which cast a shadow over the country’s housing recovery.
The dollar slipped 0.1 percent versus the yen to 98.60 yen , hovering below Friday’s high of 99.15 yen, the greenback’s highest level since Aug. 5.
The dollar may stick to a 98 yen to 99 yen range in the near term, said a trader for a European bank in Tokyo.
“I think the dollar will basically stay in the 98-yen area,” the trader said. On Friday, the greenback had run into what seemed like pretty active selling at levels above 99.00 yen, he added.
One key factor for the dollar’s near-term outlook against the yen is the recent turmoil in emerging markets such as India and Indonesia, a trader for a Japanese bank in Singapore said.
Some market players regard the turbulence in emerging markets as a supportive factor for the yen, a traditional safe haven currency that can attract demand when market sentiment toward riskier assets worsens.
U.S. durable goods orders due later on Monday should be viewed in this context as well, said the Singapore-based trader for a Japanese bank.
“If durable goods come in strong...and U.S. yields head higher, the dollar probably will test the upside versus the yen. But at the same time, that would dent Asian currencies and emerging markets as well,” he said, adding any such weakness in emerging markets could drag the dollar lower against the yen.
Trading volumes over the course of the day are expected to be lower than usual, due to a summer bank holiday in the UK on Monday.
Fundamentally, the dollar was still smarting from Friday’s data showing sales of new U.S. homes slid 13.4 percent in July to their lowest in nine months, sparking worries that rising mortgage rates were curbing the recovery.
The news added to uncertainty about when the Federal Reserve might start tempering its stimulus and dragged 10-year Treasury yields lower.
Much of the market still thinks the Fed will begin tapering in September, but a lot will depend on the August payrolls report due on Sept. 6. Analysts suspect it would take a very weak reading to push back the start date.
The euro was little changed near $1.3379.
The euro has been steadily gaining ground on the dollar since the early part of July, but some analysts say the greenback may be in for a bounce.
“Importantly, last week’s price action suggests the upside risks are on the rise given the effective test and hold of key support levels amid a short term oversold framework,” argued analysts at JPMorgan.
“Moreover, several USD pairs as well as the DXY confirmed bullish reversal weeks.”
The dollar index held steady at 81.372. It would take a break above the August highs from 81.943 to 82.500 to get a clear uptrend going.
Helping the dollar is the fact that the market is not as long of the currency after several weeks of falls.
Speculators pared their bets in favour of the U.S. dollar for a fifth consecutive week in the week ended Aug. 20, data from the Commodity Futures Trading Commission showed on Friday.
The value of the dollar’s net long position fell to $13.54 billion, the smallest in two months, from $17.62 billion the previous week. Speculators were bullish on the euro for a third straight week.