GBP/USD: Trading the US New Home Sales

The New Home Sales report is a leading indicator of housing activity. The indicator is released on a monthly basis, and helps analysts track consumer spending. A higher reading than that expected by the market is bullish for the dollar.

Here are all the details, and 5 possible outcomes for GBP/USD.

Published on  Friday at 15:00 GMT.

Indicator Background

The  New Homes Sales Report measures the number of new single-family homes sold the previous month, and  provides  analysts and traders with  important data about the housing sector.  An increase in home sales  indicates stronger consumer spending and confidence in the economy.

The  previous  reading dropped slightly in November, coming in at 307K. This was slightly lower than the market forecast of 313K. For December, the markets are predicting a slight improvement, up to 314K. Will the indicator rebound and beat the forecast?

Sentiments and levels

Economic indicators are pointing  to the UK heading into a recession in 2012. The current account dropped to its lowest level in four years, and property and retail sales remain sluggish. Across the pond, the US dollar is benefitting from an improving US economy, and is rallying against most major currencies.  So, the overall sentiment is bearish on GBP/USD towards this release.

Technical levels, from top to bottom: 1.5882, 1.5815, 1.5780, 1.5690, 1.56, 1.5520 and 1.5470.

5 Scenarios    

1. Within expectations: 307K to 321K: In such a case, GBP/USD is likely to move within range, with a small chance of breaking higher.
2. Above expectations: 322K to 326K: An unexpected higher reading could pull  GBP/USD below one support level.
3. Well above expectations: Above 326K: A sharp increase  will  send the pair downwards and two or more support levels could be broken.
4. Below expectations: 302K to 306K: A reading lower than forecast could send GBP/USD above one resistance level.
5. Well below expectations: Below 302K: A sharp decline in housing sales would signal weakness in the US economy. In such an outcome, the pair would likely break two or more resistance levels.

For more on the pound, see the GBP/USD forecast.