The US housing market has been a major contributor to the US economy for a very long time and is the sector of the financial market which caused the financial crisis of 2008 which also dragged the US Dollar down and caused ripple effects across the globe. When housing stabilized the US economy strengthened as well and the stimulus the Federal Reserve implemented was meant to help interest rates stay low and spur demand for mortgages.
Since the Federal Reserve started to taper its stimulus the housing market may come under pressure once again. Prior to the taper housing pointed to a slowdown and most housing reports disappointed forex traders. Much worse than expected weather has further constrained the housing market which will subtract from GDP growth in the first-quarter.
A weaker US economy will weaken the US Dollar which means all currency pairs where the US Dollar is the quote currency will move higher while all currency pairs where the US Dollar is the base currency will move lower. Forex traders should watch out for housing reports in order get a better picture of the US housing market and understand violent price swings. This will also help explain price action swings which show up in your forex charts.
Here is a quick overview of the most recent housing reports out of the US:
National Association of Home Builders Housing Market Index – This report by the NAHB for February offered a very negative outlook for the housing market as it missed expectations which called for a reading of 56. The report came in 10 points lower at 46 and rattled confidence in the housing market.
Building Permits and Housing Starts – This report offered another disappointment as building permits for January dropped 5.4% which means that future housing activity will be depressed as well. Housing starts plunged 16% which pressured the US Dollar further.
Existing Home Sales – Existing home sales dropped 5.1% to 4.62 million units. This was the third report which disappointed forex traders in regards to the housing market and put pressure on the US Dollar.
Forex traders should expect continued volatility in the US Dollar and are advised to keep monitoring economic reports especially those covering the housing market as well as manufacturing reports which have also delivered a serious of disappointments. Forex traders should watch out for minor correction in currency pairs where the US Dollar is the quote currency and add to their long positions.
