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FX Day Trading - 25 August 2010
Slump in US existing home sales sends USD lower
That's right, lower
New home sales data today
The combination of brilliant teachers and diligent students produced another record year for GCSE success. It marked the 23rd year of continuous improvement in the overall results, with 99% of candidates passing their exams. Teachers' unions are hoping that everybody will pass next year. A five-year-old only managed a C grade in maths, so clearly the exams cannot be as easy as some critics allege.
In forex spread betting, Sterling also confounded its critics yesterday by getting a C in swimming. Despite beginning the day clutching a concrete lifebelt it managed to tread water for 24 hours, even managing some forward progress against the commodity dollars. It actually climbed a cent higher against the US dollar at one point, although not without outside assistance.
That help came in the form of a 27.2% fall in US existing home sales. It was the third successive monthly decline following the removal of a federal tax break for home buyers. The number was horrid, with sales at their lowest since 1999 despite 30-year mortgage rates being at a record low of 4.42%. Estate agents have nearly 4 million unsold homes in their inventory: at July's rate of sales it will take more than a year to sell them, even if no other properties come onto the market.
Although the dollar later recouped most of the losses it incurred from the news, the interesting bit was the fact that investors initially sold it.
Recently the attitude has been to see bad economic news - from the States or wherever - as an excuse to buy safe-haven yen and US dollars. Intriguingly, the instant reaction to the home sales slump was to buy the dollar against the yen and to buy sterling and euros against both of them. Whether the response marked a change of heart among investors, or was just an aberration, will take time to fathom.
The US existing home sales data rather stole the show but there were a couple of other figures to consider. Industrial new orders in the euro zone were up by 2.5% in June and were 22.6% higher on the year.
As with most other Euroland ecostats, country-by-country performance was patchy. A measly 0.1% rise in Canadian retail sales, coupled with a downward revision from -0.2% to -0.4% for the previous month, was unhelpful to the Loonie in the spread betting markets. But did it no lasting damage. The five-point decline in the Richmond Fed's manufacturing index, from 16 to 11, got lost amid the hoo-hah that attended the home sales slump.
Overnight Japan has announced a widening of its trade surplus but officials in Tokyo are worried for the future.
Analysts there and elsewhere are in agreement that the yen is too strong. Goldman Sachs says it is overvalued by 20% and that that it will result in falling demand for Japan's exports.
Japanese Finance Minister Yoshihiko Noda said this morning that he is prepared to take 'appropriate action' to correct the situation after the yen touched a 15-year high against the dollar. Noda San said he will 'watch currency movements very closely with great interest.'
You bet he will: With Recession II lurking over the horizon, falling domestic prices and a strengthening currency the minister has reason to be concerned. What he can do about it is another thing.
History shows that (in the case of a major currency) the only time central bank intervention works is when it is co-operative and when it takes advantage of a change - even if only a fleeting change - in investor sentiment. Selling yen into a rising market amounts to no more than providing the buyers with cheap yean. (Single-handedly buying into a falling market is even more of a fool's errand, as Chancellor Lamont discovered in the early nineties.)
Today's fairly useless collection of data includes IFO's survey of German business sentiment and US durable goods orders. Potentially less useless will be the US new home sales figures. After rebounding with a 23.6% increase in June the analysts are optimistically predicting 0.0% change in July.
If they are correct, which was the anomaly; the fall of more than a quarter in existing home sales or the steady performance of new home sales? Or is it just that Americans don't like buying second-hand stuff?
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'FX Day Trading 25 Aug 2010', Article by Moneycorp, last update: 25-Aug-10
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