Common sense tells us that if US data comes out bad, shouldn’t the dollar fall?
If that’s the case, then what the heck happened last week?? Let me recap what happened…
Existing Home Sales
On Wednesday, US existing home sales plunged to a two year low! The market had been expecting a 0.9% drop in sales to 6.56 million. What they got instead was a whooping 4.1% eye dropper! As icing on the cake, inventory of existing home still hoping for a buyer rose to a ridiculous 13 year high.
Looking below, you’ll see that market rewarded this bad piece of US data by *gasp* buying more dollars! Within an hour of the release, the euro and cable both dropped over 30 pips and the swissy and yensabi both rose over 30 pips.
What’s going on here?! If a country’s data comes out worse than expected, should its currency fall? Maybe this was one time event. Or was it?
Durable Goods Orders
The next day, US durable goods orders came out. And how did it do?
It depends on how you look at it.
If you looked at the headline number, it was terrible! The market was looking for a 0.2% decline, but they got a mammoth 2.4% decline instead.
If you exclude the 9.6% drop in transportation goods though, durable goods orders actually rose 0.5%, which is the 10th increase within the past twelve months. Underneath the headline, there seems have been a little piece of gold.
Aside from the EUR/USD, the market was pretty unsure on what to make of the data as the other major pairs stayed within 10 pips.
Or maybe traders were waiting for the US new home sales data scheduled to be released an hour and a half later…
New Home Sales
If dollar bulls were looking for a pretty number, they sure didn’t get one. Sales of new homes dropped 4.3% in July to a seasonally adjusted annual rate of 1.07 million. The market was expecting a 2.8% decline.
And that’s not all! New-home sales are down 21.6% in the past year, the biggest drop since late 1994!
There’s still more! Inventories of unsold homes rose 1.1% to a record 568,000 in July, representing a 6.5-month supply at the July sales rate. That’s the largest months’ supply since November 1995. That’s 11 years ago!
With such appalling numbers, you would’ve pictured traders frantically trying to get rid of their dollars, but nooooooo, that’s not what happened here. Staring the chart below, it was quite the opposite. The dollar actually went UP!
Hmmm so we ended the week with poor housing numbers and (depending on how you look at it) not-so-good durable goods orders. And for the most part, the dollar went up after each data release.
When data from a country comes out poor and its currency gets bought instead of sold, it make me start to wonder.
Could the market be telling me something? Is the dollar so oversold that traders see it as a bargain? Are the euro, cable, swissy, yensabi, all now considered too expensive at their current levels in relation to the dollar?
Are the dollars bulls who have been hurting as of late planning a suprise attack?
Or are the dollar bears simply taking profits before they head off on their nice summer vacations?