Over the course of the last week, the US released housing data for April that was weaker than expected:
- Housing Starts: 1.569M vs 1.71M expected
- Existing Home Sales: 5.85M vs 6.09M expected
- New Home Sales: 0.863M vs 0.970M expected
On Thursday, the US will release Pending Home Sale, with expectations ranging from 0.8% to 2.0%. Could this piece of Housing data will be weaker as well?
In addition, housing price data was released today. However, it was for March. The House Price index was higher than expected. Did higher prices in March led to lower sales in April? And does it matter that the price of lumber was up nearly 50% for the month of April? Thus, for April, we are seeing higher prices and lower sales. The Fed says the inflation is transitory, so they intend to still support the economy by buying $120 billion of bonds a month, of which $40 billion worth are mortgage backed securities (MBS).
Does it matter what stocks are doing? Traditionally, a lower DXY would equate to a stronger stock market. The two assets are usually negatively correlated. However, look at the current correlation coefficient between DXY and S&P 500 Futures. The correlation is -0.02, which means there is almost no correlation at all on a daily timeframe. So, any jitters that main street stocks may be feeling is not resulting in a higher US Dollar.
Source: Tradingview, FOREX.com
The DXY is cruising lower while stocks can’t push through previous all-time highs. The DXY is currently trading at is lowest level since January 7th. However, price is currently sitting on horizontal support at 89.68 and the bottom trendline of a bullish wedge near 89.50. Below that, price can fall to the January 6th lows at 89.21. The next support isn’t until the February 2018 lows near 88.25! If price breaks out of the top of the wedge pattern, the target is near 91.50. However, it would first need to get above the top, downward sloping trendline of the channel near 90.15 and horizontal resistance at 90.30. Above there is another level of horizontal resistance at 90.95, before the target.
EUR/USD is also trading just above levels not seen since early January. And, like the DXY, EUR/USD currently has almost no correlation to stocks. EUR/USD and S&P 500 traditionally have a strong correlation, but not right now. As with the DXY, the pair is forming a wedge, however this one a bearish wedge. Price is pushing against the upper trendline near 1.2275. Above there is horizontal resistance at 1.2350. The next level isn’t until the April 2018 highs at 1.2418. Support below is at the bottom, upward sloping trendline of the wedge and horizontal support near 1.2150/60. Below there, price can fall to horizontal support and the target of the rising wedge near 1.1989.
Source: Tradingview, FOREX.com
Although the housing price index for April was higher than expected, the housing sales data has been worse than expected. But the Fed says current inflation is transitory. Therefore, with the Fed still in easing mode, the DXY may continue to fall while EUR/USD continues no rise….no matter what stocks do!