Housing Data Confirms Doubts

25-08-2010

USD

Existing Home Sales in the U.S. plunged according to Tuesday’s report and this confirmed ‘whispers’ that had surrounded the number before its release. The USD traded in a stable manner against the EUR and GBP yesterday and held onto its gains made earlier. Wall Street declined before the issue of the housing figures and equities essentially moved cautiously thereafter. Today New Home Sales statistics will be published and an outcome of 333k is anticipated. Also Core Durable Goods Orders will be brought forth, but investors will keep their eyes glued on the housing sector data. Yesterday proved that investors seemed to know that the bad result was coming as they participated in an early sell off in equities. Tomorrow weekly Unemployment Claims figures will be released and its numbers the past month have cheered very few.

The U.S. government essentially proved that their policy, which included tax breaks for first time home buyers that came to an end the month before, merely delayed more pain in the housing market. Not only do questions continue to be raised about housing and employment, but this coming Friday the Revised GDP will be brought forth and it stands to reason that investors will be nervous about this too. In the past few weeks a growing chorus of market participants has openly expressed their fear that a double dip recession is just around the corner. Optimists seem to be in short supply and while some are pointing to ‘cheap’ prices on Wall Street for well known equities, others are simply asking where growth is going to come from. The USD is trading in its ‘traditional’ safe haven mode and given the amount of lackluster sentiment in the broad markets it may continue to find backing.

EUR

The German GDP was released yesterday and it met its expectation head on with a gain of 2.2%. The EUR lost further ground to the USD Tuesday, but it accomplished this at a slower pace than the previous two sessions. Questions were raised about the debt ratings of Ireland, but this should certainly have not come as a surprise to investors. However, what is important to note is that the divergence ‘barometer’ continues to falter – meaning that the E.U. is seeing a growing disparity within its nations and questions about a ‘two tiered economic’ sphere. The German Ifo Business Climate reading is on schedule today and its estimate is calling for a reading of 105.8. The combination of the German data and a nervous international conglomerate of investors will continue to put the EUR to the test today under a risk sentiment cloud.

GBP

The Sterling found some stability on Tuesday and this occurred even as the BBA Mortgage Approval numbers disappointed investors with a figure of 33.7k, which was well below the estimate and the previous month’s outcome. Thus, the GBP appears to have found some ‘fair value’ backing as traders may have held the notion that the decline in the GBP had been too swift the past few sessions. There will be no major data from the U.K. today and tomorrow the Nationwide HPI is tentatively listed on the schedule (but it is doubtful it will be released until later). The Revised GDP publication on Friday stands as the next big ‘local’ event for the Sterling and until then traders will move in a dollar centric mode.

JPY & AUD

The BoJ entered the fray once again saying that it stands ready to act if the JPY continues to get stronger against the USD. It also went out of its way to warn ‘speculators’ that they should be prepared for the JPY to weaken when the central bank acts. However, traders may have listened to this announcement with a skeptical eye and asked themselves how the Japanese government would carry out such a move. The JPY continued to trade at high water marks against the USD on Tuesday and until there is a sea change risk adverse investors will continue to be attracted to the Yen. The AUD traded at the lower realms of a weaker range on Tuesday as Australia still tries to hammer out an election result for investors to sink their teeth into.

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