Dollar Recovers After US Pending Home Sales Hit 6-Month High

The US dollar was initially weaker against the Euro and the Swiss franc Monday but by New York open, it erased much of its earlier declines on the stabilizing US stock markets (Dow went up by more than 100 pips intraday)and after the release of a better-than-expected report on US pending home sales in April. The National Association of Realtors’ index for pending sales of previously owned homes rose 6.3% to 88.2 from March, and this is the highest level in six months.

The surge in buying activity is mainly concentrated in zones which saw double-digit price declines. So whether people are buying homes for themselves or for investment, they are attracted to the lowered property prices and had already signed the contracts to purchase even though the transactions weren’t closed yet (hence pending). If mortgage rates continue to fall as they have recently, that might lead to more people qualifying for home loans and thus more buyers to absorb the pool of housing inventories.

Strong Dollar Mantra

US president Bush repeated Monday that the US commitment to a strong dollar. He said, “A strong dollar is in our nation’s interests. It is in the interests of the global economy. The long-term health and strong foundation of our economy will shine through and be reflected in currency values.”

These remarks were made before he left for Europe to attend the US-European Union summit in Slovenia. What’s interesting is that Bush usually issues statements regarding currencies when prompted, but in today’s case, he wasn’t prompted by the media. The US dollar is likely to be propped up prior to Fed chairman Bernanke’s speech on Tuesday at 0015 GMT where he could again reiterate that the dollar is on his mind.

Forex Trading

EUR/USD rose to a six-week high around 1.5845, but then retreated towards 1.5700. 1.5660 and 1.5630 are support levels for the currency pair. The improved USD sentiment in the US session also lifted USD/CHF from its intraday low of 1.0145 to 1.0280, and its nearest support is around 1.0120-30.

However the US dollar has not been able to rise against the British pound after a big rise in UK producer prices was reported earlier today, reigniting hopes that the Bank of England may have to raise rates in the coming months to fight inflation. GBP/USD rose from 1.9670 to a high of 1.9800.

Tuesday:

Fed’s Bernanke speaks on inflation 0015 GMT

UK industrial production 0830 GMT

Italy GDP 0900 GMT

Fed’s Fisher speaks on monetary policy 1200 GMT

US trade balance 1230 GMT

Bank of Canada rate decision 1300 GMT (rate expected to be cut from 3% to 2.75%)

UK NIESR GDP estimate 2301 GMT

Japan GDP 2350 GMT

Posted in Categories: Economy, Forex.

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Comment by TRG

2008-06-09 11:32:40

Today’s US home sales data was quite unexpected. I see it as a positive sign of the housing market even though sales were 13.1% lower than a year ago.

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