eur fundamentals

US Dollar the Strongest of the Majors, Continues Consolidation - Nearing a Breaking Point?

Wednesday, 25 February 2009 21:21:07 GMT  |  Terri Belkas, Currency Strategist

The US dollar surged against the major currencies amidst persistent risk aversion and as fundamental releases from other regions made conditions in the US seem relatively solid. However, technical analysis is proving to be increasingly important at this juncture, as the US dollar index is still in the midst of a tight consolidation within an ascending triangle formation, with a break above the 2008 highs likely to signal a continuation of the currency’s uptrend. On the flip side, a drop below Monday’s lows would indicate a reversal of the dollar rally that started in December.

In economic news, the National Association of Realtors (NAR) reported that US existing home sales for January unexpectedly fell 5.3 percent from the month prior down to a record low of 4.49 million. A breakdown of the report shows that median home prices were down 14.8 percent from a year earlier at $170,300 while supply levels edged up to 9.6 months from 9.4 months. Meanwhile, MBA mortgage applications for the week ending February 20 plunged 15.1 percent following a massive 45.7 percent increase the week prior. Though the MBA’s release is highly volatile, it only adds to evidence that the US housing collapse has yet to end.  Federal Reserve Chairman Ben Bernanke was also on the wires as he testified in front of the House Financial Services Committee, and while most of the remarks were similar to what we saw yesterday, he did make a concerted effort to say that the government isn’t planning “anything like” nationalization, which he said means “zeroing out shareholders” and causing disruptions in the markets. Though this provided a brief boost to the stock markets, it obviously was not enough to warrant outright optimism as both the DJIA and S&P 500 ended the day down over 1 percent.

Looking ahead to Thursday, signs that domestic demand is showing no sign of recovery should continue to emerge as US durable goods orders are forecasted to have dropped 2.5 percent and even excluding transportation is anticipated to fall 2.2 percent. All told, this would mark the sixth straight month in which the headline reading failed to rise, and while this will have the most impact on forex trading, the markets should keep an eye on non-defense capital goods orders excluding aircraft, as this number serves as a leading indicator for business investment. The 3-month annualized figure has fallen sharply over the past few months, and combined with the weak outlook for the headline reading, risk aversion could linger and ultimately lead the US dollar higher.

Related Article: Is the Japanese Yen Losing Its Safe Haven Status?


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