Wednesday, 15 April 2009 11:28:34 GMT
Written by David Song, Currency Analyst
Full Article
Housing starts in the U.S. is expected to slip to an annualized rate of 540K in March as credit conditions remain far from normal however, as policymakers take unprecedented steps to lower mortgage rates and stem the rise in foreclosed homes, falling borrowing costs paired with low-priced property values could lure potential home buyers as the market nears a bottom.
Trading the News: U.S. Housing Start
What’s Expected
Time of release: 04/16/2009 12:30 GMT, 08:30 EST
Primary Pair Impact: EURUSD
Expected: 540K
Previous: 583K
Impact the U.S. Housing Start report had over EURUSD for the past 2 months
February 2009 U.S. Housing Start
U.S housing starts unexpectedly increased 22.2% in February to 583K, while building permits rose to 547K from a revised reading of 531K in January. The breakdown of the report showed that construction of multi-family homes surged 82.3% during the month, while work done on single-family homes increased 1.1%, and the data suggests that the housing market could be nearing a bottom as policymakers take unprecedented steps to shore up the economy. As bank remain reluctant to lend, the Federal Reserve is expected to step up its effort to lower borrowing costs further, and may take extraordinary steps to pump up the money supply as the outlook for growth and inflation falter. Meanwhile, the Obama administration pledged to spend another $275B in an effort to stem the rise in foreclosures, and the efforts should help to make homes more affordable as households face a weakening labor market.
January 2009 U.S. Housing Start
Housing starts in the U.S. plunged 16.8% to 466K in January, which is the lowest level since records began in 1959, while building permits dropped 4.8% to 521K. A deeper look at the report showed that construction of single-family homes fell 12.2% during the month, while work done on multi-family homes plunged 29.7%, and the data continues to reinforce a weakening outlook for the housing market as property values slide while foreclosures continue to swell. As a result, President Obama announced that the administration will commit $75B in an effort to lower mortgage rates and to stem the rise in foreclosed homes however, demands for home purchases are likely to remain subdued throughout the first half of the year as credit conditions remain far from normal. Moreover, as the labor market deteriorates at a record pace, households are likely to face a difficult time in keeping up with mortgage payments, and stockpiles of unsold homes may continue to push higher as banks remain reluctant to lend.
What To Look For Before The Release
Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:
Bullish Scenario:
If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on EURUSD ahead of the data release.
Bearish Scenario:
If we see substantially deeper available liquidity on the Offer side of the market, this tells us that major price providers in the market are looking to sell the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bearish bias on EURUSD ahead of the data release.
How To Trade This Event Risk
Housing starts in the U.S. is expected to slip to an annualized rate of 540K in March as credit conditions remain far from normal however, as policymakers take unprecedented steps to lower mortgage rates and stem the rise in foreclosed homes, falling borrowing costs paired with low-priced property values could lure potential home buyers as the market nears a bottom. The extraordinary efforts taken on by the Obama Administration and the Federal Reserve has helped to stabilize the housing market as existing home sales rose 5.1% in February to reach an annual rate of 4.72M, while demands for new homes unexpectedly bounced back from a record-low as sales increased 4.7% to 337K from a revised reading of 322K in January. In addition, pending home sales rose 2.1% during the same period amid forecasts for a flat reading, while mortgage applications drove higher for the fifth consecutive week to reach a 3-month high in the week ending April 3, and the data suggests that the downturn in the housing market is nearing an end as demands for home purchases pick up. The rebound in housing activity reinforces comments from Fed Chairman Ben Bernanke earlier this week as he sees ‘tentative signs that the sharp decline in economic activity may be slowing,’ and as the FOMC pledges $1.45T to acquire mortgage-related securities and commits $300 in Treasury purchases in an effort to shore up the credit market, the central bank head went onto say that there have been ‘considerable improvements’ in some parts of the financial markets. However, Dr. Bernanke stated that home prices could ‘undershoot’ as the housing industry remains ‘extremely depressed,’ and said that the Fed will aim to stem the downside risks for the market through its newly created programs. Meanwhile, Dallas Fed President Richard Fisher said that the economic outlook for the world’s largest economy remains ‘grim,’ and stated that he expects the unemployment rate to exceed 10% this year as the nation faces its worst financial crisis since the Great Depression, and the remarks suggests that housing activity will remain subdued throughout the medium-term as the labor market deteriorates at a rapid pace while household confidence remains near a record low. Nevertheless, as risk sentiment continues to drive price action in the foreign exchange market, a rise in risk aversion could also fuel demands for the U.S. dollar as the reserve currency benefits from safe-haven flows.
Expectations for a drop in housing starts favors a bearish outlook for the U.S. dollar however, the rise in home purchases paired with the extraordinary efforts taken on by policymakers could boost demands for building activity as borrowing costs decline. Therefore, if housing starts unexpectedly increase in March, we will look for a red, five-minute candle following the event to confirm a sell entry on two-lots of EUR/USD. Once these conditions are met, we will set our initial stop at the nearby swing high (or reasonable distance), and this risk will establish our first target. Our second target will be based on discretion, and in an effort to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.
On the other hand, fears of a deepening recession paired with falling home prices foreshadows a weakening outlook for building activity, and as households face a weakening labor market, demands for home purchases are likely to remain subdued over the medium-term. As a result, an in-line print or a drop below 540K would lead us to hold a bearish outlook for the greenback, and we will follow the same setup for a long euro-dollar trade as the short position mentioned above, just in reverse.
DailyFX provides forex news on the economic reports and political events that influence the currency market. Learn currency trading with a free practice account and charts from FXCM.
Written by David Song, Currency Analyst
Full Article
Housing starts in the U.S. is expected to slip to an annualized rate of 540K in March as credit conditions remain far from normal however, as policymakers take unprecedented steps to lower mortgage rates and stem the rise in foreclosed homes, falling borrowing costs paired with low-priced property values could lure potential home buyers as the market nears a bottom.
Trading the News: U.S. Housing Start
What’s Expected
Time of release: 04/16/2009 12:30 GMT, 08:30 EST
Primary Pair Impact: EURUSD
Expected: 540K
Previous: 583K
Impact the U.S. Housing Start report had over EURUSD for the past 2 months
February 2009 U.S. Housing Start
U.S housing starts unexpectedly increased 22.2% in February to 583K, while building permits rose to 547K from a revised reading of 531K in January. The breakdown of the report showed that construction of multi-family homes surged 82.3% during the month, while work done on single-family homes increased 1.1%, and the data suggests that the housing market could be nearing a bottom as policymakers take unprecedented steps to shore up the economy. As bank remain reluctant to lend, the Federal Reserve is expected to step up its effort to lower borrowing costs further, and may take extraordinary steps to pump up the money supply as the outlook for growth and inflation falter. Meanwhile, the Obama administration pledged to spend another $275B in an effort to stem the rise in foreclosures, and the efforts should help to make homes more affordable as households face a weakening labor market.
January 2009 U.S. Housing Start
Housing starts in the U.S. plunged 16.8% to 466K in January, which is the lowest level since records began in 1959, while building permits dropped 4.8% to 521K. A deeper look at the report showed that construction of single-family homes fell 12.2% during the month, while work done on multi-family homes plunged 29.7%, and the data continues to reinforce a weakening outlook for the housing market as property values slide while foreclosures continue to swell. As a result, President Obama announced that the administration will commit $75B in an effort to lower mortgage rates and to stem the rise in foreclosed homes however, demands for home purchases are likely to remain subdued throughout the first half of the year as credit conditions remain far from normal. Moreover, as the labor market deteriorates at a record pace, households are likely to face a difficult time in keeping up with mortgage payments, and stockpiles of unsold homes may continue to push higher as banks remain reluctant to lend.
What To Look For Before The Release
Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:
Bullish Scenario:
If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on EURUSD ahead of the data release.
Bearish Scenario:
If we see substantially deeper available liquidity on the Offer side of the market, this tells us that major price providers in the market are looking to sell the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bearish bias on EURUSD ahead of the data release.
How To Trade This Event Risk
Housing starts in the U.S. is expected to slip to an annualized rate of 540K in March as credit conditions remain far from normal however, as policymakers take unprecedented steps to lower mortgage rates and stem the rise in foreclosed homes, falling borrowing costs paired with low-priced property values could lure potential home buyers as the market nears a bottom. The extraordinary efforts taken on by the Obama Administration and the Federal Reserve has helped to stabilize the housing market as existing home sales rose 5.1% in February to reach an annual rate of 4.72M, while demands for new homes unexpectedly bounced back from a record-low as sales increased 4.7% to 337K from a revised reading of 322K in January. In addition, pending home sales rose 2.1% during the same period amid forecasts for a flat reading, while mortgage applications drove higher for the fifth consecutive week to reach a 3-month high in the week ending April 3, and the data suggests that the downturn in the housing market is nearing an end as demands for home purchases pick up. The rebound in housing activity reinforces comments from Fed Chairman Ben Bernanke earlier this week as he sees ‘tentative signs that the sharp decline in economic activity may be slowing,’ and as the FOMC pledges $1.45T to acquire mortgage-related securities and commits $300 in Treasury purchases in an effort to shore up the credit market, the central bank head went onto say that there have been ‘considerable improvements’ in some parts of the financial markets. However, Dr. Bernanke stated that home prices could ‘undershoot’ as the housing industry remains ‘extremely depressed,’ and said that the Fed will aim to stem the downside risks for the market through its newly created programs. Meanwhile, Dallas Fed President Richard Fisher said that the economic outlook for the world’s largest economy remains ‘grim,’ and stated that he expects the unemployment rate to exceed 10% this year as the nation faces its worst financial crisis since the Great Depression, and the remarks suggests that housing activity will remain subdued throughout the medium-term as the labor market deteriorates at a rapid pace while household confidence remains near a record low. Nevertheless, as risk sentiment continues to drive price action in the foreign exchange market, a rise in risk aversion could also fuel demands for the U.S. dollar as the reserve currency benefits from safe-haven flows.
Expectations for a drop in housing starts favors a bearish outlook for the U.S. dollar however, the rise in home purchases paired with the extraordinary efforts taken on by policymakers could boost demands for building activity as borrowing costs decline. Therefore, if housing starts unexpectedly increase in March, we will look for a red, five-minute candle following the event to confirm a sell entry on two-lots of EUR/USD. Once these conditions are met, we will set our initial stop at the nearby swing high (or reasonable distance), and this risk will establish our first target. Our second target will be based on discretion, and in an effort to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.
On the other hand, fears of a deepening recession paired with falling home prices foreshadows a weakening outlook for building activity, and as households face a weakening labor market, demands for home purchases are likely to remain subdued over the medium-term. As a result, an in-line print or a drop below 540K would lead us to hold a bearish outlook for the greenback, and we will follow the same setup for a long euro-dollar trade as the short position mentioned above, just in reverse.
DailyFX provides forex news on the economic reports and political events that influence the currency market. Learn currency trading with a free practice account and charts from FXCM.