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The US Housing Shows Continual Recovery

A guest post written by DAR Wong

Currency Market Observations – 27 August 2012

Fundamental Outlook

The US home sales data indicates recovery again and may finish the second semester of 2012 with recovery. Euro leaders meet to discuss in stamping out debt crisis and inject strong buying sentiment in euro and pound currencies. UK property prices remain in fatigue amid slowdown but pound has been perked up in limited topside room alongside with positive euro sentiment.

The US existing home sales increased in July by 2.3 percent to a 4.47 million annual rate, adding evidence that housing markets have begun to strengthen with demands. New home sales climbed 3.6 percent in July to a 372,000 annual pace, better than median forecast and after following a 359,000 rate in June that was higher than initial estimate.

However, outlook for 2013 by the non-partisan Congressional Budget Office (CBO) stick to pessimism. CBO officials said that scheduled tax increases and spending cuts in 2013 would reverse the modest economic recovery and end up in recession. Another report on jobless claims ended in August 18 rose by 4,000 for a second week to reach 372,000, struggling to coup with rising unemployment.

Till now, US economy sticks in doldrums with unemployment loitering briefly below 9 percent while budget deficits continues to swell and reach USD1.1 trillion in 2012. This will be the fourth consecutive year that US government runs into trillion dollar budget deficits.

Last week, Euro regional leaders met to discuss Greece’s fiscal adjustment program and aimed to stamp out the debt crisis with plans to reduce the bonds yield. Euro currency recovered to highest in 6-weeks above 1.2500 benchmarks. German Chancellor Angela Merkel said she and French President Francois Hollande will coordinate on their approach to Greece to keep pressure on the country at the heart of Europe’s debt crisis to overhaul its economy.

The UK Rightmove Plc reported the sales prices of homes in England and Wales slid 2.4 percent to GBP236,260 (USD371,282) in August, after it declined 1.7 percent in July. Another report showed the government’s budget deficit, excludes financial aids to banks, unexpectedly narrowed in July by GBP557 million (USD878 million) compared with a surplus of GBP2.84 billion a year earlier.

Britain’s GDP growth fell 0.5 percent in Q2, lesser than initial estimate. Construction output was down 3.9 percent in the 3-month ended June, less than the 5.2 percent initially estimated. The National Institute for Economic and Social Research (NIESR) predicts that the government will miss the financial target for the fiscal year ending March 2013 and forecasts a deficit of GBP138.5 billion.

Technical Forecast

USD/JPY slid down to 78.50 areas on Friday after it climbed briefly above 79.50 levels last week. As we mentioned previously, the trend is likely to sink again and largely trading inside the range from 78.00 – 79.50 regions. However, beware of the bears engulfing beneath 78.00 in coming week in case dollar continues to weaken.

EUR/USD recovers to 6-week high at 1.2550 regions for the weekend. Moving forward, we reckon the bulls will be resilient with support sitting firmly at 1.2400 areas. If this support could remain intact, the rally may surge to 1.2800 regions should the speculations of FED stimulus and Euro bailout plan continue to excite the market sentiment.

GBP/USD hit intra-week high briefly above 1.5900 levels and softened a bit for the weekend closing. This week, we expect bargain hunting to emerge at 1.5750 – 1.5800 regions while the market will trade sideways and prone to surge again. Breaking above 1.5900 resistances again will probably lift the market trend fiercely to above 1.6000 major benchmarks.

Dar Wong

This post is contributed by OPF Guest Blogger, DAR Wong.

Wong is the founder and Principal Consultant of PWForex.com and holds a professional
qualification in NASD series 3 and 5 approved by National Futures Association (USA).

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DISCLAIMER: This post is written for general information only. The author, publisher and/or any third party involved in the distribution of this work assume no legal responsibilities and shall have no liability whatsoever for any direct or consequential losses, costs or expenses arising from the use of the information contained herein.

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