USD/JPY: Trading the US New Home Sales Oct 2012

The US  New Home Sales indicator is released monthly, and provides analysts with a snapshot of the health and direction of the housing sector. A higher reading than the market  forecast is bullish for the dollar.

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

Published on  Wednesday at 14:00 GMT.

Indicator Background

The New Home Sales indicator  helps measure of the strength of the US housing market, one of the most important sectors in the economy. As a house is likely to be the largest purchase that a consumer will make, home sales are a critical component for economic growth.

New  Home Sales disappointed last month, as the reading of 373 thousand new homes was well below the market forecast. The markets are expecting better numbers in October, with an estimate at 386K.  Will the indicator meet or beat the market expectation?

Sentiments and levels

The BOJ intervened at the end of October 2011, and we might be seeing some market participants front running this event now. The Japanese Finance Minister has been  very vocal about  the need  for a weaker yen, and wants the BOJ to take stronger action.  Weak US data, such as last week’s awful  jobless claims numbers, will keeps gains limited. So, the overall sentiment is bullish on USD/JPY towards this release.

Another note: USD/JPY so far justifies its title as the most predictable currency pair for Q2.

Technical levels, from top to bottom: 80.60, 80.20, 79.70, 79.05 and  78.80.

5 Scenarios

1. Within expectations:  381K to 391K: In such a case, USD/JPY is likely to rise within range,  with a small chance of breaking higher.
2. Above expectations:  392K to 397K: An unexpected higher reading can send USD/JPY above one resistance line.
3. Well above expectations: Above 397K: A sharp increase could propel the pair  above two or more resistance lines.
4. Below expectations:  375K to 380K: A weak reading could send USD/JPY below one support level.
5. Well below  expectations: Below 375K. In this outcome, the pair could break two or more support levels.

For more on the yen, see the USD/JPY forecast