19/06/'07 - Will key housing data cap recent USD losses?

[B]Economic News


Yesterday the greenback continued to extend its losses against the EUR and the sterling as the USD has been under pressure since Friday’s release of weaker-than-expected US core CPI data, which caused market players to scale down their expectations for US interest rates. The negative impact of the weak inflation figures was further exacerbated by the release of weaker than expected industrial production. The EUR traded around the 1.34 level against the USD and failed to gain further ground after touching 1.3417 as traders are still hesitant to drop the dollar lower after its recent bullish surge where it reached the 1.3265 level. The only news coming out of the US yesterday was the US housing market index from the National Association of Home Builders which fell in June for the fourth straight month to the lowest point since 1991. It seems that housing developers are being pressured by the existing tighter lending conditions for borrowers trying to obtain mortgage loans. So the only way developers can respond is by cutting prices and offering incentives to buyers so that they can cope with the ever-increasing supply of unsold homes. In a week light on US news the lower-than-expected housing market index seems to be one of the main factors that were responsible for yesterday’s continued dollar slide and this is rather disappointing for the USD as a positive figure would have surely capped the dollar losses.

Today all focus will shift to the release of US Building Permits and Housing Starts figures for the month of May. Since this week is relatively void of significant news events, the release of these figures is expected create some market movement. The Building Permits figure is a leading indicator for the housing sector as it measures the number of new intended constructions and it should once again provide a glimpse into whether US housing weakness is subsiding as the economy shows signs of recovery. The market is expecting a figure of 1.47M which is an improvement on last months figure of 1.46M but nevertheless this is still a slowdown relative to recent months. On the other hand Housing Starts is expected to be released significantly weaker at 1.48M from last months figure of 1.53M. The Building Permits and Housing Starts figures are released simultaneously but traditionally Housing Starts is the more pivotal of the two and if it surprises on the upside with a release above 1.6M then the greenback should pullback some of its recent losses. However soft housing data could do further damage to the dollar over the short term, but with a lack of major data releases this week the tone is likely to one of a drift lower rather than a major decline in the currency.


There was no significant news coming out of the Eurozone yesterday but the EUR continued its bullish surge against the greenback and the JPY following hawkish comments by various European Central Bank members as they reportedly continued to warn on inflation risks and reiterated that monetary policy remains on the accommodative side. The EUR should continue rising against the USD on speculation that the ECB will raise borrowing costs to tame inflation. Investors are bullish on the EUR as they strongly believe that the ECB is heading for higher rates, possibly 4.5 by the end of the year, while in contrast Japan is keeping rates very low and the US is holding rates unchanged.

The most significant European news being released today is the German ZEW Economic Sentiment which measures institutional investor sentiment. The market is expecting a figure of 29.0, which is a decent improvement to last month’s figure of 24.0. Today if the ZEW releases positively as expected coupled with soft US housing data then we may see the EUR charge to the 1.3460 level against the greenback. It may also rise to 166.30 versus the Yen as there is no sign of carry trades unwinding in the near future.


The JPY was the weakest performer yesterday as it hit fresh 4 -1/2 year lows against the greenback touching the 123.66 mark. It also slid to a new record low 165.69 versus the EUR and weakened significantly against the sterling. The Japanese currency came under renewed pressure on Friday after a dovish speech from Bank of Japan Governor Toshihiko Fukui suggested interest rates will not rise again any time soon, while gains on equity markets overnight caused the yen to add to its losses. Also the fact that US core inflation released weaker at a time when all other data is suggesting that the US economy is recovering should rally equities and commodities which will in turn spur on carry trades.

There was no significant economic news coming out of Japan yesterday and today is also void of data so we should see the JPY continue on its bearish path, with most yen crosses expected to rise as the carry trade unwind is nowhere to been seen and to the contrary all signs are for carry trades increases, at least in the near future.

[B]Technical News


On the 4 H chart we notice that the bullish trend is running ahead. The volatility is increasing, especially after the pair has broken the 1.3405 support level. The price should continue to move upwards in a range of 1.3400 to 1.3515. As it stands, the bullish pressure will continue to gather momentum on the EUR USD today as well.

On the 4 H chart, a rising wedge (bullish) is forming which may imply a continuation of the bullish momentum, it’s recommended to time the entrance into market with short term charts, 1.9860 seems like a strong entry point. At the moment GPB USD is being traded around 1.9820 to 1.9950 range. The volatility is high and we should expect to see today bullish pressure on the GBP. The uptrend should continue to the 1.9885 resistance level.


The USD JPY broke the 123.69 support level. USD JPY is in an uptrend supported by 1H exponential moving averages. The volatility is low. Bollinger bands are tightened. We should expect to also see today a continuation of the bullish configuration. 1H, 4H Elliott pattern imply that the USD JPY will continue to gather momentum. The target is expected at 124.00


The USD CHF is in a bearish configuration. The volatility is decreasing. USD CHF moves without trend and swings around exponential moving averages (EMA 50 and 100). Bollinger bands are tightened. 1H, 4H Elliott pattern imply a continuation of the bearish pressure. The target is expected at 1.2340

[B]The Wild Card[/B]


On the 4 H chart, a rising wedge (bullish) is forming which may imply a continuation of the bullish momentum, 0.6795 seems like a strong entry point. At the moment EUR GBP is being traded around 0.6740 to 0.6840 range. The volatility is high and we should also expect to see today bullish pressure on the EUR GBP. This forex uptrend should continue to the 0.6770 resistance level.