Dollar needs housing recovery - 24-05-07

Overall, the US currency could edge stronger, but strong gains will be difficult unless there is a firm increase in housing sales.

The dollar weakened sharply to lows around 1.35 in early New York on Wednesday. The dollar stabilised close to 1.3460 in choppy trading as markets tested technical levels. The US currency was little changed in early Europe on Thursday before strengthening to 1.3430.

There were no major US economic developments during the day, but the data releases over the next two days will be significant. Jobless claims and durable goods orders on Thursday will be monitored for evidence on industrial growth and the labour market.

The housing data will be a key influence with new and existing home sales releases due this week. A significant monthly increase in sales would help reinforce increased optimism over the US economy and maintain the more favourable yield spreads seen over the past week while sharp declines would undermine confidence. Overall, the dollar will be in a better position to secure further gains against the Euro if the yield spread on 10-year Treasuries over bunds rises to above 50 basis points from just below this level at present.

Tim Clayton
Investica Ltd
E-mail: tim.clayton@investica.co.uk
+44 (0) 1452 781001