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Housing Report Drives Dollar to Three−Month High

James Hyerczyk from ForexHound.com at 12/22/09


The U.S. Dollar added to its earlier gains following the release of a better than expected existing home sales report. The rise in the Dollar following the release of good economic news is another sign that investors are returning to watching traditional fundamentals for direction.

The Dollar was trading a little better overnight following another downgrade of Greece’s debt, but gave back those gains when the U.S. released a lower than estimated final third quarter GDP report. The good news from the housing sector is likely to underpin the Dollar the rest of the day, but thin holiday trading could limit those gains.

The Euro is trading lower at the mid-session. The combination of a downgrade of Greece’s debt by Moody’s and the better than expected U.S. housing report is helping to apply the downside pressure.

The GBP USD added to its overnight weakness after the U.S. released the friendly existing home sales report. Overnight U.K. GDP was revised upward to show a loss of 0.2%. The previous estimate was for a loss of 0.3%. Pre-report estimates were for a loss of 0.1%. Pressure is expected to continue until the U.K. economy starts to show growth like its European counterparts.

Rising Treasury yields continue to boost the USD JPY. Optimism over an economic recovery in the U.S. is leading traders to sell the Japanese Yen. The recent rise in Treasury Bond and Note yields have become attractive to Japanese investors who have to sell the Yen to buy Dollars. Upside momentum is signaling a possible test of the October top at 92.32 over the near-term.

The Dollar continues to rally against the Swiss Franc. Not only are traders looking for the U.S. economy to recover faster than the Swiss economy, but some investors are factoring in the possibility that Euro Zone sovereign debt issues may spillover to the Swiss financial system. Falling gold prices are applying additional pressure on the Swiss Franc.

The strengthening U.S. economy is having a positive effect on the Canadian Dollar. Although the USD CAD has faltered the past three days, this currency pair remains inside of its October to November range. The mid-point of this range is 1.0598. This price is an important pivot. Additional pivot price support comes in at 1.0537. Look for the USD CAD to remain inside its trading range until either economy takes the lead.

A shift in risk sentiment is pressuring the AUD USD and NZD USD at the mid-session. Previously, a rise in U.S. equity markets would have led to demand for higher yielding assets like the Aussie and Kiwi, but investors are now selling these currencies while returning to traditional fundamental analysis. Watch for a possible technical bounce in the AUD USD at the 50% price at .8780. A failure to hold this level could trigger a further decline to .8633.

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