Existing Home Sales came in today at 4.77 million – less than the 4.82 million analysts had been expecting, but still a slight increase from 4.68 million the prior month.

Looking at this report between the lines, we find that by far the majority of these sales came from town houses and condominiums, rather than from single family homes.  Part of the reason for this could be the limited credit available out there, forcing families to settle for something smaller than the home of their dreams in order to take advantage of interest rates while they are still at their lowest.

The other reason is simply home valuations.  With home prices in the US dropping another 0.1% this month, owners of single family homes are understandably reluctant to let go of their properties at current prices.  The National Association of Realtors even accused appraisers of under-valuating properties, citing their use of computer modeling.  The sad reality is that your house isn’t worth what you think it’s worth, nor what you paid for it – like any other commodity, it is worth what the market is willing to pay for it.

Meanwhile, over in Europe, we got a slew of PMI numbers today.  The Purchasing Managers Index is thought to be a leading indicator on the economy – if companies are spending more, the logic goes, then very likely they’re earning more.

Manufacturing traditionally leads services both into and out of recessions, and while the numbers we got today were still negative across the board (50 and above is considered expanding), they do point to a slowing in spending cuts, with French manufacturing coming in slightly better than expected at 45.5 (compared with 43.3 the prior month), and the overall manufacturing PMI for the European Union meeting analyst expectations at 42.4 (an increase from 40.7 the prior month).

What does this mean for the future direction of the EUR/USD?

We are currently watching two critical support levels, one at 1.3736 and the other at 1.3967

If the Euro can mange to hold 1.3967 as support against the US Dollar, then we could see price eventually climb as high as 1.4528, with resistance on the way at 1.4082 and 1.4225

If, on the other hand, price falls below 1.3736 (and re-tests that level as resistance), then the Euro could fall as deep as 1.3247 against the US Dollar, with additional support along the way at 1.3549 and 1.3434