NEWS / Foreign Exchange

UK Sailors Story & Housing Worries May Resurrect Risk Aversion

The dollar drops,while gold and oil both rise on breaking news that 15 UK sailors, naval marines are being held at gun point by Iranian forces. British soldiers serving in Iraq are stationed in Basra , and frequently patrol the waters near Iran . Oil rises to $62.30 per barrel.  Incident was first announced at 10:30 am Iraq Time. British Govt has summoned Iranian Ambassador.

February home sales are expected to show a 2.3% decline to 6.3 mln after a 3.0% and 0.3% increase in January and December. Concerns remain due to the persistently high supply of home inventories measured in months supply above 6.5 and the continued decline in median prices. The January decline in pending home sales and new home sales should also translate into a lagged decline in February existing home sales. A decline in new home sales is likely to filter more in USDJPY, dragging the pair towards the 117.50. Expect accelerated declines in the pair to wards 117.30s in the event that US stocks turn negative amid resurging fears of a housing deterioration

Bernanke??™s JEC appearance may be as important as the FOMC statement

Fed Chairman Bernanke is scheduled to speak on the economic outlook before the Joint Economic Committee on Wednesday, where he will likely be questioned on the mortgage sub-prime fallout and the likelihood that these problems will filter into the average consumer and the general economy. The nature of the issue at hand should create a heated performance by lawmakers speaking on behalf of their affected constituents, and is expected to subject Bernanke to the highest degree of pressure and questioning since assuming the Fed Chairmanship. Since Bernanke will be testifying to a group of anxious lawmakers, he is unlikely to adopt the usual sanguine tone on housing at a time when foreclosures, delinquencies and layoffs have risen as a result of both the sub-prime developments and the overall decline in home sales and prices.

Euro rises on Iran Story

EURUSD rises from 1.33 to 1.3340 amid flight safety away from USD on the news of the capture of 15 UK navy sailors by Iranian forces. A continuation of this impasses combined with weak US home figures could prolong the gains towards the 1.3350 and onto the 1.3360 resistance, which is the 50% retracment of the 1.3411-1.3302 decline. Key resistance stands at 1.3370. A resolution of the Iran story could see EUR retreat towards the 1.33 figure, especially if the decline in existing home sales comes in within expectations.

USDJPY vulnerable to 117.30s

The breaking news of the UK Navy sailors combined with a likely deterioration of US housing worries from today??™s existing home figures could resurrect the retreat in risk appetite, weigh on equities and boost the Japanese currency. USDJY technicals are already pointing to intraday pullback to 117.30, which is near the 38% retracement of the 115.77-118.32 rise. The breach below the trend line support supports this near term view and calls up possibility of 117. Upside capped at 117.80 and 118.10.