* 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 held steady 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 was little changed at 98.69 yen, hovering below Friday’s high of 99.15 yen, the greenback’s highest level since Aug. 5.
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.
The euro was little changed at $1.3380.
The euro has been steadily gaining ground on the dollar for over seven weeks, 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 81.378 but 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.
Fundamentally, the dollar was still smarting from Friday’s U.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.
But analysts emphasised that this sales series is notoriously erratic and subject to large revisions, so it was far too early to draw any solid conclusions for it.
“Of course, new housing is a volatile series and we just got news that existing home sales continued to rise sharply,” said Citi economist Peter Dantonio.
“But this is a huge decline in new home sales that comes at a time when mortgage rates are shooting higher. So the drop raises some red flags about the strength of the housing recovery going forward.”
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.