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As a result, the Fed is likely to maintain a dovish outlook for future policy and may look to support the real economy throughout the remainder of the year as Chairman Ben Bernanke maintains his pledge to hold the benchmark interest rate close to zero for an “extended” period of time.

USDJPY Minute Chart

Market_Reaction_body_usdjpy.png, U.S. Existing Home Sales Plunge 27.2 Percent in July

Charts Created Using Intellicharts – Prepared by Michael Wright

Taking a look at price action subsequent to the dismal report, the USDJPY tumbled to a fresh yearly low and will likely continue its southern journey going forward following comments by Japan’s Prime Minister. Indeed, Japan’s head told policy makers that he did not want the central bank to embark on any policy action as of yet. This factor in conjunction with traders seeking safety may continue to fuel Japanese yen strength. Meanwhile, traders continue to look for a corrective retracement in the pair. Our speculative sentiment index now stands at 6.75, and signals for further declines.

S&P 500 Intraday Chart

Market_Reaction_body_S&P.png, U.S. Existing Home Sales Plunge 27.2 Percent in July

Source: Bloomberg

In the equity markets, the S&P 500 took a nose dive at the release of the data, and is down approximately 14 points, while the Dow Jones Industrial average has plunged 128 points as of late.

Dow Jones Industrial Average

Market_Reaction_body_DJIA.png, U.S. Existing Home Sales Plunge 27.2 Percent in July

Source: Bloomberg – Prepared by Michael Wright

The Dow Jones industrial average is currently testing the 38.2 percent Fibonacci retracement on the July 15th 2009 to April 28th 2010 upswing. A break below this level will expose downside risks towards 9675 and 9302.