US S&P/CS House Prices (Q3) (YoY) (14:00 GMT; 09:00 EST)
Expected: -4.1%
Previous: -3.2%

Consumer Confidence (NOV) (15:00 GMT; 10:00 EST)
Expected: 91.0
Previous: 95.6

How Will The Markets React?

Just in case traders forgot, US economic data this week is likely to highlight the mounting recession risks that have plagued the greenback and equity markets. Indeed, the S&P/Case-Schiller house price index is anticipated to post a record drop for the third consecutive quarter at a rate of 4.1 percent. With inventory levels holding at over 10 months for existing homes and over 8 months for new homes (according to the National Association of Realtors) and demand highly unlikely to pick up anytime soon, it’s no wonder that prices have pulled back so much. Furthermore, the few Americans looking to buy face major hurdles, as lending standards have become far stricter as financial institutions remain leery of issuing credit. Nevertheless, this news will not be entirely surprising to investors as everyone from US Treasury Secretary Henry Paulson to Fed Chairman Ben Bernanke has acknowledged the dismal status and prospects for the housing sector. However, the one factor that there is little consensus on is the American consumer. Will they remain as resilient as ever in the face of record high gasoline prices and declines in the stock markets and spend their way through the holiday shopping season, or will they turn more pessimistic and conserve their income in fear of recession? Believe it or not, reports that Black Friday saw US retailers rake in more cash than last year have left many quite optimistic that these kind of results will be the norm throughout December. However, this may simply be the result of massive discounting, and it remains to be seen just how willing consumers are to loosen their purse strings. The Conference Board’s consumer confidence survey for the month of November is expected to support the more cynical predictions, as the index may drop for the fourth consecutive month to a two-year low of 91.0. Fed fund futures are pricing in a 96 percent chance of a 25bp cut in December, and this speculation may only be ramped up further if Tuesday’s US economic data proves to be as disappointing as or worse than expectations.

Bonds – 10-Year Treasury Note Futures

Treasuries remain contained to a clear ascending channel, though price has continued to back off from the highs of 113-23 as stock market gains weigh the contact down. Nevertheless, Tuesday’s economic data may help keep the trend in text, as dour housing and consumer sentiment reports could underpin the case for a Fed rate cut in December. Trendline support lies below at 112.28.

FX – EUR/USD

Since EUR/USD hit an all-time high of 1.4967 on Friday, many traders have been left wondering whether the pair has topped out or if a more substantial test of 1.50 is in store. With Black Friday retail sales reported to be strong, the markets may be looking to reignite a bid tone for the greenback, as signs that consumption will remain resilient and keep the economy from falling into recession will also spark speculation that the Federal Reserve will not cut rates in December. However, Tuesday’s US event risk may bring gloomy news to the forefront once again. S&P/Case-Schiller are expected to show that house prices fell for the third consecutive quarter in Q3, while the Conference Board’s consumer confidence survey is forecasted to drop to a two year low. Neither release will come as a huge shock to the markets, but if the figures prove to be worse than expected, the greenback could continue its losing ways and push EUR/USD higher for a test of 1.50.

Equities – Dow Jones Industrial Average

The descent of the Dow has formed a falling wedge pattern on the daily charts, which tends to serve as a bullish formation. Thus, a break above trendline resistance at 13,008 suggests that the Dow may continue to gain towards the 13,500 level. Reports that Black Friday sales were strong supports the case for further gains in US equities, but Tuesday’s economic data may not. Indeed, the S&P/Case-Schiller house price index is predicted to fall for the third consecutive quarter while the Conference Board’s consumer confidence survey is forecasted to drop to a two year low. Neither release will come as a huge shock to the markets, but if the figures prove to be worse than expected, the news could take a toll on the Dow and help push the index down towards the August lows of 12,517.94.

Terri Belkas is a Currency Strategist at FXCM.