U.S. Housing Report Could Accelerate Gains in the Euro

Despite news that the German Ifo Business Confidence Index fell to a 16-year low, the Euro remained strong versus the U.S. Dollar in overnight trading. This move may accelerate to the upside if U.S.

 

Despite news that the German Ifo Business Confidence Index fell to a 16-year low, the Euro remained strong versus the U.S. Dollar in overnight trading. This move may accelerate to the upside if U.S. Existing Home Sales come out worse than expected in a report due at 9 a.m. EST. A weaker than expected report will confirm expectations that the U.S. recession will be longer and deeper than originally forecast. At 12:00 EST president-elect Obama will reveal his economic stimulus plan and introduce his new financial team. This group will be put in charge of restoring confidence to the U.S. financial system as well as provide solutions to the deepening recession. Watch the EUR USD at this time because of the possibility of a change in trend or an acceleration to the upside especially if the news is well-received. 
 
Additional strength is being provided by increased trader appetite for risk. Late Sunday night, the U.S. government announced a $306 billion loan guarantee for Citigroup along with $20 billion in cash to provide stabilizing capital. This news is sending confidence throughout the global equity markets, leading investors to demand higher yielding assets such as the Euro. As confidence continues to build in the U.S. banking system, look for more short-covering as traders even up positions bought over the past two weeks on perceptions the U.S. Dollar had become a safe-haven investment.
  
Technically, the EUR USD appears to be range bound however, a trade through 1.2855 is expected to trigger an acceleration to the upside because of stop losses and breakout buying. The main trend will remain down until 1.3116 is violated.