NEWS / Foreign Exchange

Daily FX Commentary

Housing relief for dollar

The dollar could grind stronger in the very short term, but with near-term resistance likely close to 1.3250 against the Euro.  

The US currency found support close to 1.3340 against the Euro on Friday and strengthened in US trading with highs close to 1.3285 as dollar pessimism eased slightly. There was no major Euro-zone economic data over the day, but there was a weak reading for Italian retail sales which maintained some concerns over the risks of divergence within the Euro-zone which could lead to pressure for ECB interest rate increases to be halted.

US existing home sales rose to an annual rate of 6.69mn in February from a revised 6.44mn the previous month and this was the highest rate since May 2006. There was a small increase in inventories while prices rose over the month, but dipped over the year. The housing data is volatile on a monthly basis, but the February gain will ease immediate concerns over a sharp slowdown, especially if the new home sales data is also firmer on Monday. The dollar retained a firmer tone in early Europe on Monday with highs near 1.3260.

Given the fears that housing weakness could spread to the wider economy, the firmer housing data will lessen wider fears that the economy could slip into recession. Expectations of a June Federal Reserve interest rate cut edged lower after the data and this adjustment in expectations will provide some near-term dollar protection.