Rebound in US Housing Data helping DXY maintain its bid

The US Dollar Index (DXY) appears to be channeling the data into higher prices

USA (1)

US Existing Home Sales rebounded in June, up +1.4% MoM vs +0.9% expected and -1.2% in May.  This is in addition to the strong June US Housing Starts released Tuesday, which was +6.3% vs 0.8% expected and +2.1% in May.  Next week, we’ll get US Pending home sales, which are currently expected to be -1% vs +8% in May.  Will Pending Homes Sales continue the trend of better than expected housing data?

What are economic indicators?

In addition to the Housing data next week, there is a FOMC meeting.  The Fed’s current monetary policy is extremely accommodative, keeping interest rates near zero and purchasing $120 billion of US Government bonds per month.  There makeup of the type of bonds that the Fed buys is $80 billion US Treasury bonds and $40 billion of Mortgage-Backed Securities.  Last week, Fed Chairman Powell testified to Congress in his semi-annual report on the economy that he does not believe that the purchase of MBSs are contributing to a boom in the housing market. In addition, Powell said that “substantial further progress” towards full employment is still a ways off, thus he doesn’t intend on tapering bond purchases anytime soon. We’ll find out more at next week’s FOMC meeting! 

The US Dollar Index (DXY) appears to be channeling the data into higher prices.  As homebuyers rush to market to purchase homes before the Fed begins tapering, the US Dollar is grinding higher in anticipation of near-term inflation.  On the daily timeframe, the DXY began moving lower on March 31st from a high of 93.43 to a low of 89.53 on May 25th, forming a descending wedge.  The target for a breakout of a descending wedge is a 100% retracement of the wedge.  The DXY broke higher out of the wedge in early June and paused just above 61.8% Fibonacci retracement level from the March 31st highs to the May 25th lows, near 92.05, then pulled back forming a pennant pattern.  The target of a pennant is the length of the pennant “pole” added to the breakout point, which is near the same target for the longer-term wedge, 93.43. 

Market chart showing performance of US Index with technical analysis. Published July 2021 by

Source: Tradingview,

What is the US Dollar Index (DXY)?

On a 240-minute timeframe, we can easily see that once the DXY broke out of its pennant formation, price began moving towards its target within a channel.  Note, however, that the RSI has been diverging with price, an indication that the DXY may be ready for a pullback.  Resistance is at the top trendline of the channel near 93.25, just ahead of the target and March 31st high of 93.43.  Support is at the lows of the channel near 92.50,  and then horizontal support from the July 6th lows near 92.00.

Market chart showing performance of US Index with positive trend. Published July 2021 by

Source: Tradingview,

With the Fed apparently in no hurry to begin tapering MBSs any time soon, monetary policy will remain accommodative.  And as long as monetary policy is accommodative, the housing market should remain buoyant.  However, the DXY has already begun to price in the Fed’s tapering decision. Next week, if they indicate that they will delay announcing tapering  passed the September meeting, DXY could move lower.  However, if the committee causes Chairman Powell to change his tune and announce tapering sooner than later, the DXY will go bid!  All eyes on housing data, FOMC, and the DXY next week!

Learn more about forex trading opportunities.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account