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US New Home Sales is released monthly, and provides analysts with important data on the health and direction of the housing sector. A higher reading than the market prediction 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

US New Home Sales provides analysts and investors with a snapshot of the strength of the US housing market, one of the most important sectors of the economy. As a house is likely to be the largest purchase that a consumer will make, this indicator also  helps  analysts track consumer spending and confidence.

New Home Sales has looked very sharp. The indicator has  beaten the estimate for the past two releases, and the previous reading of 476 thousand was the indicator’s best showing since 2008. The markets are looking for more, with the estimate for the July release standing at 482 thousand. Will the indicator  repeat with another strong showing?

Sentiments and levels

The Japanese economy has been getting some tough medicine in the form of Abenomics, and slowly but surely is showing some improvement. There was a thumbs up from  the BOJ last week, which  expressed cautious  optimism about economic conditions in its recent policy meeting. If this week’s Japanese inflation releases continue to improve, this could improve market sentiment and bolster the yen. Over in the US, the hot issue of QE tapering by the Federal Reserve remains unresolved after Bernanke’s uneventful testimony before Congress. Overshadowed by Bernanke were some strong US releases, and if US  data continues to look good  this week, the dollar could  push higher. So, the overall sentiment  is  neutral on  USD/JPY towards this release.

Technical levels, from top to bottom: 101.44, 100.85, 100, 98.90,  97.80 and 96.71.

5 Scenarios

  1. Within expectations: 477K to 487K: In such a case, USD/JPY is likely to rise within range, with a small chance of breaking higher.
  2. Above expectations: 488K to 493K: An unexpected higher reading can send USD/JPY above one resistance level.
  3. Well above expectations: Above 493K: A sharp increase could propel the pair  past a second  resistance line.
  4. Below expectations: 471K to 476K: A reading lower than forecast could send USD/JPY below one support level.
  5. Well below expectations: Below 471K.  A very weak release could push  the pair below  a second  support level.

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

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