Shortly after the forex markets opened Monday, forex traders took the opportunity to short the British pound against the US dollar, driving it down below 1.8480 towards 1.8400 in a short period of time, taking advantage of the fact that many stops were positioned below the major support level that was mentioned here. Initially, other currencies such as the Euro, Pound, Swiss franc and the Yen fell versus the US dollar, but they later rebounded, more than retracing their earlier declines. Trading volume is thin as we enter the last week of August and also the UK is on holiday today. Today’s better-than-expected US existing home sales data only elicited subdued response from the US dollar, but don’t read too much into the USD’s lack of enthusiasm.
Firstly, even though existing home sales rose by 3.1% to 5 million (4.9 million expected) in July from a downwardly revised level of 4.85 million in June, the supply of unsold homes in the market has increased, rising to a record 11.2 months, from 11.1 months in June. The average price of an existing home sold in July was $212,400 - a decline of 7.1% compared to a year ago. The increased backlog of homes for sale isn’t an encouraging sign for the housing market as it means that prices still have a ways to fall before the stock can be cleared at a faster pace.
Secondly, there isn’t much excitement from the US stock markets; at the time of writing, the Dow was down by more than 200 points on weekend news of a bank collapse in Kansas, and on worries that AIG (NYSE:AIG), the world’s largest insurance company, may post a big loss in the third quarter. That worry stems from Credit Suisse (NYSE:CS) saying that AIG may post a loss of $2.41 billion on mortgage-related writedowns.
Tuesday will bring along more major economic data from the Eurozone and the US. EUR/USD may be capped below 1.4820 ahead of the German IFO business climate survey to be released Tuesday which will give us more indications of the sentiment in the Eurozone’s biggest economy. US housing data and consumer confidence will also be eagerly anticipated.
Economic Calendar For Tuesday:
UK Nationwide house prices
German GDP 0600 GMT
German IFO 0800 GMT
US S&P/Case-Shiller house price index 1300 GMT
US consumer confidence, new home sales 1400 GMT
US FOMC minutes 1800 GMT