There has been an important market shift over the past 2 weeks. For much of 2009, the dollar tended to strengthen on poor US economic news as it gained from a deterioration in risk appetite. This pattern has certainly changed for now with the US currency weakening on bad news while it has gained ground on good news. This pattern should continue in the short term and the dollar looks to have hit a near-term peak at 1.4220 against the Euro. EUR/USD selling will offer some value at 1.4395 as some optimism over US trends early in 2010 is likely to produce a move to the 1.39 area.
The US existing home sales data was stronger than expected on Tuesday with a rise in the annualised selling rate to 6.54mn for November from 6.09mn the previous month and this was the fastest selling rate since February 2007.
There was some additional dollar support on yield grounds which helped maintain a firm tone for the US currency. The Euro weakened to a fresh 3-month low near 1.4215 before consolidating around 1.4250 as liquidity thinned ahead of the Christmas holiday period.
In contrast, the new home sales data on Wednesday was sharply weaker than expected with a decline to an annual rate of 3555,000 from a revised 400,000 the previous month as buying subsidies came to an end. In reaction, the US currency weakened abck beyond 1.43 against the Euro.
There was a further decline in inventories which should help support sales over the next few months.