US Dollar, Japanese Yen Down as US Libor Hits Record Low, New Home Sales Surge

Published July 28th, 2009 - 01:39 GMT


The US dollar and Japanese yen both remained under pressure on Monday as investor sentiment continues to improve, leading to increased demand for higher-yielding currencies, and riskier assets in general. Other evidence of increased confidence comes from the US dollar Libor, as the British Bankers’ Association said that the 3-month rate fell to a record low of 0.496 percent from 0.502 percent on July 24, which ultimately indicates an increased willingness to lend. Meanwhile, the low-yielding dollar and yen experienced a short-lived plunge at 10:00 ET after the US Commerce Department reported that new home sales jumped 11 percent in June to an annual pace of 384,000, which brought supply levels down to 8.8 months from 10.2 months, the lowest since October 2007. The surge was especially interesting based on the fact that the average rate on 30-year fixed-rate mortgages rose to a 6-month high of 5.42 percent in June (according to Freddie Mac). However, a 5.8 percent monthly drop and 12 percent annual decline in median prices to $206,200 likely helped to offset the increase in borrowing costs, as well as the Federal Housing Tax Credit of $8000 for first-time home buyers.

Looking ahead to Tuesday, the Conference Board's index of US consumer confidence is anticipated to fall for the second straight month in July, this time down to 49.0 from 49.3. However, based on the drop in the University of Michigan's measure to 66.0 in July from 70.8, there may be potential for tomorrow's report to be somewhat disappointing. That said, US economic data has been surprisingly strong lately, with housing reports showing increased sales and the pace of initial jobless claims down quite a bit from June, suggesting that if the Conference Board's consumer confidence index does indeed drop, it may not be by a large margin. Furthermore, if the index reading inspires optimism amongst investors, US equities could really and the greenback may pull back.

From a technical perspective, the majors at holding near critical levels, and a continuation of the moves we’ve seen over the past three weeks would signal a break from recent trading ranges. More specifically, on a longer-term basis, the DXY index has held above support from the December 2008 and June 2009 lows near 78.35, EUR/USD has yet to push above falling trendline resistance (connecting the September, December, and June highs) near 1.4250, and GBP/USD is well below the 2009 highs near 1.6700. On a shorter-term basis, GBP/JPY has been unable to push above 157.50 and EUR/JPY faces resistance at 136.00.

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