Existing Home Sales (NOV) (15:00 GMT; 10:00 EST)
Expected: 4.97M
Previous: 4.97M

What Are The Markets Facing?

On Monday, the National Association of Realtors is expected to report that existing home sales held at 4.97 million - the lowest reading since record-keeping began in 1999. Sales of existing homes account for nearly 85 percent of the market, according to NAR, so this particular release serves as a good indicator of the status of the sector as a whole. Traders will also be looking at the inventory component, as signs that supplies continue to build while demand wanes will suggest that prices have much further to fall. This news will not be entirely surprising as everyone from US Treasury Secretary Henry Paulson to Fed Chairman Ben Bernanke has acknowledged the dismal prospects for the housing sector. Still, worse-than-expected readings may only lead the markets to price in sharper rate cuts for January 30. However, Richmond Fed President Jeffrey Lack, an alternate voting member on the FOMC, said recently: “I have to say that I am uncomfortable with the inflation picture, and disappointed that the improvement we saw earlier this year was not more lasting.” Nevertheless, despite such commentary that suggests the Fed will not reduce the federal funds rate next month, fed fund futures now price in an 76 percent chance of a 25bp cut – up from 68 percent a day ago but down from 92 percent a week ago. As a result, a worse-than-expected existing home sales report could exacerbate market speculation that the Fed will indeed cut rates.

Bonds – 10-Year Treasury Note Futures

Treasury note futures have fallen into a descending channel pattern on the daily charts, providing a bearish bias for the contract. However, if equity markets continue to falter, this could play into Treasury gains towards the 20-day moving average at 112-27. Furthermore, if US housing data proves to be disappointing next Monday, markets may ramp up speculation of a January Fed cut, which would boost Treasuries towards trendline resistance near 113-00.

FX – EUR/USD

The Euro has rallied nearly 3 percent this week and has gone to test resistance at 1.47, as the greenback tumbled amidst heightened risk aversion following the assassination of former Pakistani PM Benazir Bhutto. US data has been broadly mixed as of late, with consumer confidence and spending reports surprisingly proving to be more optimistic, while production and housing figures have been broadly disappointing. Nevertheless, with risks for the US economy vastly to the downside and the Federal Reserve still perceived as being dovish, it is little wonder the greenback is so susceptible to losses, especially at times of geopolitical distress. Indeed, as Technical Strategist Jamie Saettele said Friday in his Daily Technical Report, EUR/USD may be on its way to 1.50 and beyond, and Monday’s US data may assist the move. NAR existing home sales are expected to hold at 4.97 million, the lowest reading since record-keeping began eight years again, but anything less than that will bode particularly ill for the US housing sector, as sales of previously owned homes make up 85 percent of the market.

Equities – Dow Jones Industrial Average

The Dow plunged on Thursday as risk aversion prevailed once again following the assassination of former Pakistani PM Benazir Bhutto, with the index stopping short at 200 SMA support. Where the Dow goes from here will depend primarily on the status of risk aversion in the markets as well as financial market news, but it is worth noting that resistance looms above near 13,600 while support is below near 13,200. On Monday, the release of NAR existing home sales could weigh the Dow lower, as continuously deteriorating housing market conditions will not bode well for consumption and the economy as a whole.

Terri Belkas is a Currency Strategist at FXCM.