S&P/Case-Schiller HPI (FEB) (YoY) (13:00 GMT; 09:00 EST)
Expected: -12.0%
Previous: -10.7%

US Consumer Confidence (APR) (14:00 GMT; 10:00 EST)
Expected: 62.0
Previous: 64.5

What Are the Markets Facing?

On Tuesday, the release of US economic data will likely highlight some of the reasons why traders are ramping up speculation that the country is in midst of a recession. Indeed, the S&P/Case-Schiller index of home prices is likely to fall sharply for the fourteenth consecutive month. Later in the morning, the Conference Board’s consumer confidence index is forecasted to fall to a five year low of 62.0 from 64.5, which won’t be entirely surprising as rocketing food and energy prices combined with the collapse of the US housing sector and tightening credit conditions have sparked widespread pessimism throughout the financial markets. Furthermore, the labor markets have started to deteriorate, as the unemployment rate has slowly ticked higher in recent months and things are only expected to get worse. As a result, more pessimistic sentiment does not bode well for consumption trends for the first half of 2008 but does suggest that looser monetary policy is on the way. However, the vote for the most recent reduction in the fed funds rate had two dissenters, both of whom voted in favor of “less aggressive” policy given upside inflation risks. Indeed, fed fund futures are now pricing in a 76 percent chance of a 25bp rate cut on April 30 and a 24 percent chance of no change in policy. Nevertheless, worse-than-expected house price readings and consumer confidence could lead the markets to fully price in a reduction in rates, as the FOMC is unlikely to pause next week.

Bonds – 10-Year Treasury Note Futures

Treasuries continue to pull back from resistance at the 100 SMA at 116-14, and have recently broken below trendline support. Given the hawkish, inflation-focused commentary from various Federal Reserve officials we’ve seen lately, it’s no wonder the bonds markets are moving in favor of no change in interest rates on April 30. However, Tuesday’s economic data could lead Treasuries to bounce, as house prices are expected to plummet while consumer confidence dwindles. On the other hand, better-than-expected readings could weigh the contract below near-term support at 115 to target Fibonacci support at 113-12.

FX – EUR/USD

EUR/USD continues to plunge, and as Technical Strategist Jamie Saettele mentioned in Friday’s Daily Technical Report, an important multi-month top is in place at 1.6018. Near-term support looms below at the 50 SMA (and psychologically important) 1.55 mark, followed by the 38.2 percent fib of 1.4440 – 1.6018 at 1.5420. However, upcoming US economic data could lead EUR/USD to bounce as home prices and consumer confidence are both anticipated to deteriorate further. If the news is particularly disappointing, the pair could hold above 1.55. On the other hand, the markets are speculating that the Federal Reserve may consider leaving rates unchanged on April 30, and as long as these expectations persist, EUR/USD will likely continue to fall lower.

Equities – Dow Jones Industrial Average

The Dow Jones Industrial Average has retraced nearly 50 percent of the drop from 14,198.10 to 11,634.82, as the index managed to break above resistance at the 100 SMA last Friday as risk appetite grows. Indeed, the confluence of the 100 SMA and the 38.2 percent fib of the mentioned bear leg has formed a zone of support at 12,613/35. Upcoming US economic data could lead the DJIA lower, as home prices and consumer confidence could deteriorate further. However, if the news proves to be surprisingly strong, the index could break above resistance at 12,916 to target the 200 SMA and the psychologically important 13,000 mark.

Terri Belkas is a Currency Strategist at FXCM.