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Trade the US Existing Home Sales Report with the EURUSD

Thursday, 24 May 2007 15:24:22 GMT

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Written by David Rodriguez, Currency Analyst

Today’s impressive US New Home Sales data lent a much-needed boost to the outlook on overall consumer demand. The data showed that domestic homebuyers made the largest single-month purchase of new homes since 1993, setting the bar significantly higher for tomorrow’s Existing Home Sales print. Past experience shows that there is little dependable short-term correlation between the Existing Home Sales and New Home Sales prints, but the data nonetheless suggests that overall housing demand was a good deal stronger through the month of April. 


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How to Trade the Existing Home Sales Report

Given the recent New Home Sales numbers, risks may be weighed to the upside for the actual Existing Home Sales numbers. Whether or not this translates into USD gains is up for debate, however, making it very important to gauge initial market reactions before initiating a post-news trade. If the headline number comes in significantly above median market forecasts, we will wait five minutes to confirm a dollar rally and go short the EURUSD at market prices. The maximum loss we would be willing to accept on the position should be limited to the pair’s preceding swing-high, while initial profit targets shall be set on a 1:1 risk/reward ratio. In other words, we will look to make at least as much as we are willing to risk on the trade. Further profit taking should be discretionary, with special attention to significant support levels in the EURUSD.

A lower-than-forecast Existing Home Sales would instead allow the EURUSD to bounce off of the key 1.3415 mark and head towards intraday congestion levels above 1.3450. Given a weaker-than-forecast print, we will look to go long the Euro against the US dollar on confirmation of a 5-minute rally. Setting stops below preceding swing lows, we look to make at least as much as we are willing to risk in subsequent trade. Given that the EURUSD currently rests at the bottom of its recent price channel, it is fairly safe to assume that a poor Existing Home Sales print will allow for a sustained short-term rally.

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