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The vast majority of home sales in the US are of existing houses. This is a major indicator for the housing sector and for the whole economy, and is expected to rock the markets, as always. Here are the details, and 5 possible scenarios for EUR/USD.

Published on Wednesday at 14:00 GMT.

Indicator Background

The housing sector enjoyed a boom during the 2000s, and then suffered a bust that dragged the whole system down. A recovery in this sector is necessary for the economy to rise.

Not only are existing homes the majority of homes, they also contain the weakest link: foreclosed homes. Ben Bernanke said that these homes are suffering from lower prices and delaying the recovery. A release of this bottle neck means more sales in general and push prices higher, encouraging more transactions.

In the past few months, the annual pace of sales has stabilized at around 5 million. This is OK, but not enough for a recovery. After last month’s drop to 4.82 million, a rise to 4.91 is expected now.

Sentiment and Levels

EUR/USD has stabilized after the European stress tests, and is awaiting a serious solution for Greece. The leaders are meeting on Thursday, but expectations are low. This makes the pair stable enough to trade, as the effects of the debt crisis  will likely be muted until the end of the summit. The sentiment is neutral.

Technical levels, from top to bottom: 1.4450, 1.4375, 1.4282, 1.42, 1.4160, 1.4120, 1.4070.1.4030 and 1.3950.

5 Scenarios

  1. Within expectations: 4.7 to 5 million: Staying in range means that the pair is likely to shake, but not get out of range.
  2. Above expectations: 5 to 5.4 million: A higher range, up to the highest level seen in 2011 will be positive for the dollar. EUR/USD has a chance of losing one support level.
  3. Well above expectations: Above 5.4 million: A strong recovery in the sector could send EUR/USD below a second support level. This will lower the chances of QE3 significantly.
  4. Below expectations: 4.2 to 4.7 million: A slowdown below the range means a weaker dollar, and a rise of EUR/USD, with a decent chance of breaking higher.
  5. Well below expectations: Below 4.2 million: A serious slump in housing will elevate the chances of another QE program, in order to stimulate transactions. This can send euro/dollar to higher levels, perhaps above two levels.
For more on EUR/USD, see the euro to dollar forecast.