Daily Report: Markets in Consolidation, Focus on US Home Sales

Pre-holiday trading continues to be quiet today. Dollar index continues to stay in tight range below 81.62 as consolidation continues. Focus will turn to another round of home sales data from US today which is expected to show further deterioration in the housing sector. November existing home sales are anticipated to dropped -1% to 4.93M units from 4.98M units in October, while new home sales probably declines -3.6% to 415K in November from 433K in October. Although the 30-year fixed mortgage has been dropped -100 bps, it failed to stimulate purchase. October housing prices should have dropped another -1.3% mom.

The final readings for Q3 GDP and personal consumption are expected to be -0.5% and -3.7% respectively, same as preliminarily reported. The final December reading for the University of Michigan index of consumer sentiment likely dropped to 58.6 from 59.1 initially estimated. The gauge should have increased from 55.3 in November as decline in gasoline prices and lower mortgage rates were expected to improve personal finance and helped sentiment.

In European session, Eurozone will report current account in October after recording a deficit of 6B euro in September. In the UK, current account for Q3 is expected to be in a deficit of -11.9B pound and the finalized Q3 GDP is expected to remain at -0.5% qoq. However, there's chance for downward revisions as the business investment data released last week was below expectation.

Released overnight, New Zealand's GDP in Q3 declined 0.4% (consensus: -0.5%) from -0.2% in Q2. Household spending which contributed 60% of the nation's economy, dropped to the lowest level in 21 years. This is the third consecutive quarter of economic contraction and should probably increase the prospect for another rate cut in January.

Technically speaking, overall outlook remains unchanged. Dollar index is still expect to climb further as long as 79.43 minor support holds and should channel 83.11 cluster resistance (50% retracement of 88.46 to 77.69 at 83.07). One point to note is that EUR/CHF dips further to 1.5199 and is closer to mentioned 1.5163 support. Break of this support will confirm that rebound from 1.4315 has completed at 1.5880 after touching an important fibo resistance level and will trigger switch in balance of strength in Euro and Swissy.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.6793; (P) 0.6843; (R1) 0.6886; More

Outlook in AUD/USD remains unchanged. Price actions from 0.6008 are treated as consolidation in the larger down trend with rise from 0.6075 as the third leg. Such rise from 0.6075 could have completed at 0.7140 already and break of 0.6486 will confirm this case. Also, this will suggest that consolidation from 0.6008 has completed too. Further fall should then be seen to retest 0.6008 in such case. On the upside, though, above 0.7140 again will indicate that rise from 0.6075 is still in progress for 38.2% retracement of 0.9849 to 0.6008 at 0.7475 before completion.

In the bigger picture, whole fall from 0.9849 made a bottom at 0.6008 and turned into sideway consolidation since then. However, note that the impulsive nature of the fall from 0.9849 to 0.6008 indicate that price actions from 0.6008 is developing into correction/consolidation only. The long term down trend is still expected to resume after completing the consolidation. Sustained break of 0.6008 will indicate that the down trend from 0.9849 has resumed for at least another five wave medium term decline, targeting 0.4773 (01 low). But, note that as long as 0.6008 low holds, consolidation from could still extend further. Above 0.7140 will target 38.2% retracement of 0.9849 to 0.6008 at 0.7475 before completing the consolidation.

Forex News Digest

• The Day Ahead Canada and US: US GDP, New Home Sales, U of Michigan Confidence
• The Day Ahead Europe and UK: French Consumer Spending, Italian Consumer Confidence
• U.S. Preview: No End in Sight for New and Existing Home Sales Declines
• CA Preview: Negative October GDP to Mark Official Start of Recession
• What Can Past Canadian Recessions Teach us About the Crisis in 2008?
• New Zealand Third Quarter GDP Falls 0.4%
• Closing Market Recap: Treasury Yields Pare Losses Following 2-Year Note Auction
• Monday's News Recap: Quiet News Day Kicks Off Holiday Week
• Dollar Falls Against Euro on Speculation U.S. Housing Slump Is Deepening
• Home Sales in U.S. Probably Dropped in November as Credit Squeeze Deepened
• Britain's Pound May Weaken to Parity With Euro in New Year, Mizuho Says
• Euro May Climb to $1.50 in Two Weeks on Trading Patterns, Forecast Says
• New Zealand Dollar Falls as Economy Contracts, Australian Currency Climbs

More Forex News

Economic Indicators Update

For Crude Oil and Gold analysis, click here

Subscribe to our daily and mid-day newsletter to get this report delivered to your mail box