USD/JPY May 2012: Trading US Existing Home Sales

The  US Existing 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 prediction is bullish for the dollar.

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

Published on Tuesday at 14:00 GMT.

Indicator Background

The Existing Homes Sales Report  helps measure  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,  home sales is a critical component for economic growth.  

The April reading came in at 4.48M, well below the market estimate of 4.62M. Traders should note that this was the fifth straight reading which was lower than the market forecast. The markets are sticking to their guns, however, with little change to the May estimate, which stands at 4.64M. Will the indicator finally meet or beat the forecast this month?

Sentiments and levels

Last week’s disappointing Philly Fed Index in the US was the trigger for the fall in USD/JPY. At these levels, the pair certainly has room for rises, even if the BOJ does not actively intervene. A stealth intervention by the central bank is a distinct possibility. The downside risks come from Europe, as always.    So, the overall sentiment has turned from 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, 80, 79.60,  78.30, 77.50 and  77.

5 Scenarios    

1. Within expectations: 4.58M to 4.70M: In such a case, USD/JPY is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 4.71M to 477M: An unexpected higher reading can send USD/JPY above one resistance line.
3. Well above expectations: Above 4.77M: A sharp increase could propel the pair above two or more  resistance lines.
4. Below expectations: 4.51M to 4.57M: A  weak reading  could send USD/JPY below one support level.
5. Well below expectations: Below 4.51M. In this outcome, the pair  could  break two or more support levels.

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