Dollar Produces Restrained Rally On Surge In Home Sales

Following through with the theme of the week, the February existing home sales report added another dimension to speculation surrounding one of the most besieged sectors in the US. When the indicator ran across the wires with an unexpected improvement, the dollar quickly turned higher against most of the majors, though large levels looked as if they would hold out through to the close of the week.

For EURUSD, a final test of resistance at 1.3345 led to a quick move below 1.33 where the pair has hovered since mid-day. In USDCHF, a swing lower to on-again/off-again support at 1.2110 quickly turned into an 80-point rebound after the US news printed. Following choppy trade in the overnight, the dollar surged against the British pound to pull GBPUSD below 1.96 for a short-time before returning to more comfortable ranges. Finally, USDJPY turned off of 118.25 in the London session and slid all the way to 117.40 before dollar bids started to pull the pair higher.
The US economic calendar proved to be useful for dollar market participants from Monday to Friday. Going into the final trading session of the week, even technical traders were joining in on speculating on the health of the housing market. The heightened level of interest in Friday’s number was guided by a number of related indicators that were released earlier in the week. For optimists, February housing starts was the primary support for a better than expected print from the sales data. According to the Commerce Department’s numbers, developers broke ground on 1.525 million homes annually in February, a 9.3 percent increase from January’s pace. However, this one report contradicted the timelier NAHB industry survey, weekly MBA mortgage applications and February’s housing permits data. Therefore, the unexpected jump in previously owned homes provided immediate relief for the battered dollar bulls. Shirking the 2.5 percent drop in sales economists had predicted, the NAR gauge reported a 3.9 percent bound in sales – the biggest monthly pick up in three years – as Americans looked to take advantage of depressed prices and easing lending rates. Overall, this lifted the pace of sales to 6.69 million units a year, the most in 9 months. On the other hand, all of these deals came before the crunch in the sub-prime credit market; which will undoubtedly influence sales in coming months as lenders tighten their requirements and boost reserves. In the end, the forecast for the housing market is still bearish and Monday’s new home sales report will be a mere formality before analysts start to receive more March numbers.
Equities markets were enjoying some of the afterglow from yesterday’s strong advance. By 15:20 GMT, the Dow was leading the way with a 0.27 percent rise to 12,494.47. At the same time, the S&P 500 index was up 0.24 percent at 1,437.93 while the NASDAQ Composite was only slightly higher at 2,452.53. From the headlines, a few outlying moves were triggered by the discontinued clinical trials of one drug. Amgen’s Vectibix, used in a chemotherapy program for certain kinds of cancer, was taken out of trials – leading shares of the firm to plunge 4.8 percent to $57.55. Competitor ImClone Systems, who produces a similar drug, saw its shares rally $4.30 or 12.7 percent to $38.18. Elsewhere, PDA maker Palm reported better-than-expected earnings that lifted shares 1.8 percent higher to $18.06.
Treasuries were little moved in the wake of the housing sales report. The ten-year note was trading 3/32nds lower at 100-07 by 15:20 GMT as its yield added a basis point at 4.595. Bonds were off by 6/32nds at 100-07 as yields rose a basis point to 4.876.