USD/JPY: Trading the US Pending Home Sales Jul 2011

This important housing sector indicator proved to be a significant market mover yet again, and the upcoming publication is likely to be exciting as well. Here are the details towards the release, and 5 likely scenarios for USD/JPY.

Published on July 28th, at 14:00 GMT.

Indicator Background

This indicator reflects the change in the amount of properties that already have signed contracts, but with an uncompleted transaction. The time between the signing of a contract to the actual transaction is usually long enough.

Any change in the housing sector’s mood, in the willingness to make the biggest transaction in their life, is felt here.

The US housing sector weighs heavily on the US economy. While the services and manufacturing sectors are relatively active, real estate is very sluggish and still de-leveraging from the boom years. Ben Bernanke often mentions this sector as a painful one, together with the high unemployment.

Last month was optimistic though: a jump of 8.2% was recorded, beating expectations of a rise of only 2.5%. This provided a boost for the dollar, that was recently hit by weak data.

This time, a fall of 1% is expected to correct this rise. It is important to note that the median forecasts are usually moderate with this volatile indicator. The actual result goes to an extreme in many cases, triggering a strong reaction.

Sentiment and levels

At the time of writing, a deal on raising the US debt ceiling is still far. This is a big weight on the greenback, making the sentiment quite bearish. Any breaking news of a breakthrough could change the sentiment.

Technical levels, from top to bottom: 81.06, 80.70, 80, 79.75, 79.30, 78.50, 77.70 and 76.26.

5 Scenarios:

1. Within expectations: -2.5% to 0%: A moderate correction could see USD/JPY sliding lower, with a small chance of breaking support.
2. Above expectations: +0.1% to +4%: A second month of rises will be encouraging for the dollar. Dollar/yen can rise and challenge one level of resistance.
3. Well above expectations: Above 4%: Another strong rise will allow the dollar to recover, likely sending it over resistance, to a higher range.
4. Below expectations: -7% to -2.5%: A significant fall will likely see USD/JPY lose support and continue the slow decay.
5. Well below expectations: Under -7%: If the gains of last month are erased, this can be painful for the greenback, with a second of level of support in danger.