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A Drop in U.S. Housing Starts Would Validate EURUSD Technical Outlook

Tuesday, 19 August 2008 07:03:30 GMT  |  John Rivera, Currency Analyst

The upcoming U.S. housing starts report is expected to show new construction in July fell to 960,000 from 1.066 million the month prior

Fundamental Outlook

The upcoming U.S. housing starts report is expected to show new construction in July fell to 960,000 from 1.066 million the month prior. The housing market has failed to find a bottom despite the FOMC cutting the benchmark rate to %2.00. The central bank’s easing policy has failed to loosen credit markets leaving potential borrowers on the sideline. The resulting glut in inventory has driven down housing prices and discouraged builder’s from starting new projects. The longer the housing woes continue the less likely the MPC will raise rates in the near term, which will weigh on the dollar. Technicals are calling for an upswing in the EURUSD pair. Fundamentals and technicals don’t always agree but in this case a weak housing report would validate a long position. However, a consecutive month of better than expected results combined with rising inflation data could generate dollar bullish sentiment.

 

Technical Outlook

On Thursday’s Day Ahead, we wrote about the 4th wave triangle and discussed potential levels that could produce a bottom.  We cited “1.4431 and 1.4673” and wrote that “1.4675 seems more likely given that this is the center of the November-February consolidation.  1.4668 is the 38.2% of 1.2482-1.6018.  Look for a significant low near 1.4650/75.”  The low on Friday was at 1.4656 and the EURUSD formed an inside day (candle pattern) today; which is suggestive of at least a pause in the trend.  Very short term, a rally back to the center of the triangle near 1.49 is expected.

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