Greenback sliding against the EUR and the Yen

In reaction to the news that the FOMC would be keeping its benchmark interest rates exceptionally low for some time, the greenback slide against both the Euro and the Yen.

In addition, despite signs that the U.S housing market was beginning to recover, sales of New Homes fell to its lowest level on record- further fueling the dollar’s decline against its major currency counterparts.

Purchases of new homes within the U.S tumbled below expectations to an annual pace of 309,000, signaling that the added extension of the government tax credit may not be enough to revive demand.

This report further highlights Fed. Chairman Bernanke’s prior comments that even though the economic situation of the U.S is making a promising recovery, homebuilders continue to face intense competition from foreclosed properties that are continually driving down the prices in the market, while at the same time robbing the demand for new homes.

The result of which causes a chain reaction –decrease sales of new homes leads to a decrease in demand for construction, thus a decreased amount of employees in that field – directly effecting the level of employment for the country.

Following the release of Bernanke’s testimony to the House Financial Services Committee, and pessimistic U.S. Home Sales data - the U.S dollar plunged against its major counterparts. The EUR/USD broke a session high at 1.36250, and closed at 1.35371, up 0.18% from the day’s opening price at the Forex online market.

Today is the second half of Bernanke’s testimony of Congress; in addition, the U.S will release the Unemployment claims for last week, expected to drop to 461K, from the previous week’s 473K joblessness claims. Also out today (1330GMT), the monthly Core Durable Goods Order.

Orders have been revised to the upside in the past month, from 0.3% to 1%; while, Core orders have been revised to 1.4%. The positive trend is expected to continue, with a rise a rise of 1.6% in orders and 1.2% in core orders. This figure doesn’t touch the consumers, but has a long term impact on the economy.

Greenback sustains its bearish trend

Consumer confidence in the U.S fell sharply in February, plugging to its lowest level since April 2009. After reaching a 16-month high, of an upwardly revised of 56.6 this past January, the CB Consumer Confidence index sank a record 11 points to 56.0, as Americans turned more pessimistic about job prospects and the U.S economy.

For the seventh consecutive month, home prices in 20 U.S cities rose in December, signaling that the housing prices, concerned to be at the center of the worse economic recession since the Great Depression, are begin to stabilize.

Yesterday’s S&P/Case-Shiller Indexes showed that home prices increased 0.3% from the previous month on a seasonally adjusted basis- increasing more than expected, and matching gains seen in last November. While the index reports that housing prices were down 3.1% from December 2008, this decrease is has been the smallest yearly change seen since May of 2007. The S&P/Case-Shiller indicator came one day ahead of New Homes report.

Two months ago, this leading indicator took a dive, plugging to a new low showing everybody that the housing sector is heavily depended on government aid- since then, it has not been able to return to its previous levels. Last month’s low number of new homes sales is predicted to be followed by a slight increase this month, analyst predict sales to edge up to 354K. While the New Homes sales indicator generally has a big impact on the market, the report will most likely be overshadowed by Bernanke’s testimony.

Despite a drastic fall in consumer confidence yesterday, the greenback was able to maintain its bearish trend against its European counterpart, hitting as low as 1.34952. Although throughout the course of the day, the highly traded currency pair managed to bounce back slightly, the closing at 1.35118, down 0.65% from its opening daily price of 1.36001. Conversely, the greenback dropped a total of 1.09% against the Yen as investors flocked to the safe haven status of the Japanese currency in trading sessions yesterday. The USD/JPY plugged a drastic 1.4% before leveling out and closing at 90.194.

With the most significant economic indicators being released today revolving around the U.S. economy; the Dollar is likely to see some heavy volatility against its major currency counterparts, especially against the Euro and Yen.

Today, forex online investors will want to pay careful attention as US Federal Reserve Chairman Ben Bernanke is set to begin his two will begin his two day annual Humphrey-Hawkins testimony on monetary policy before Congress. In anticipation of the speech, the dollar index, which measure the US unite against a trade-weighted basket of six major currencies, fell to 80.788 in today’s Asian afternoon session from 80.874 in late North American trading Tuesday.

Following last Thursday’s unexpected rate hike for emergency bank loans, anticipation is high for any new news regarding the state of the U.S. economy. Positive sentiment will likely lead to major gains for the greenback, while If Bernanke’s statement “discourage an early monetary tightening policy” the dollar may likely be forced to forfeit some of last week’s heavy gains.

EUR/USD Unable to erase all its weekly losses

The USD soared across the board on Friday, as the dollar index reached an eight-month high of 81.342 in the forex online market.

The greenback rallied against its most traded peers, following release of the FED’s announcement, late last Thursday night - to boost the benchmark interest rate from 0.50% to 0.75%.

The Fed’ also announced that “the typical maximum maturity for primary credit loans will be shortened to overnight from March 18. These changes are intended as a further normalization of the Federal Reserve’s lending facilities.”

The Fed policy makers went on to state that “The moves do not signal any change in the outlook for the economy or for monetary policy.”

However, despite the Fed’s statement, the currency markets interpreted this unexpected move as a signal that the US is ready to exit its currency Easy (lose) Monetary Policy used to combat the financial crisis.

Following the Fed’s decision of a rate hike, the US core CPI came out below expectations, and even ventured into negative territory with readings showing a fall of 0.1% from the previous month. The cost of living in the U.S. rose in January less than anticipated and a measure of prices excluding food and fuel fell for the first time since 1982, indicating the recovery is showing few signs of inflation.

For the fifth straight month, the consumer-price index increased 0.2%, led by higher fuel costs. However, excluding energy and food, the core CPI unexpectedly fell 0.1 percent, reflecting a drop in new-car prices, clothing and shelter.

For the 6th week in a row, the dollar posted weekly gains against the Euro – the longest streak since a sixth week period ending during the summer of 2000. After plunging 0.788% in last Thursday’s session, its lowest price against the greenback in nine months, the Euro managed to regain some of its prior losses against the USD, increasing by 1.192% on Friday.
However, despite a remarkable recovery right before the week’s end, the EUR/USD was unable to erase all of its weekly losses, and closed the week at 1.36111 - down a mere 0.0279% from last Monday’s open.

Last Friday, the EU saw the release of several key economic indicators, including the monthly German PPI, which declined slower than expected. Germany’s Producer Price Index dropped 3.4% year-on-year in January, compared the 5.2% fall in the previous month.
On a monthly basis, the indicator rose 0.8% in January, compared to the previous fall of 0.1% in the preceding month, and a 0.3% expected.

A rise in output helped German manufacturing activity, expand at its fastest pace since June of 2007, indicating a healthy resumption of growth in the EU’s leading economy.

A flash estimate of the Market composite purchasing managers' index (PMI), which surveys both the manufacturing and services sectors, rose to 55.4 from 54.6 in January, with activity expanding at its quickest pace since August 2007. The manufacturing sector PMI surpassed expectation with a reading of 57.1, a dramatic increase from January’s 53.7. While the service sector PMI came in below expectations, it still remained in positive territory, growing for a seventh consecutive month.

Following the release of these key German figures, the EU announced the Flash manufacturing PMI as well as Flash Service PMI for the entire 16-single currency bloc, reflecting similar movements as the German PMIs. While the euro zone’s manufacturing sector recorded its best month in the past two and half years (out at 54.1, versus expected 52.8 and prior 52.4), the Service sector expanded at a slower pace than expected, out at 52.0 versus expected 52.6 and prior 52.5.

Early this morning, the Euro managed to take back all of the ground lost last week to the USD, as the Asian markets appeared to prefer risk on options- the EUR/USD squeeze as high as 1.36525. Out tomorrow, is the German Info Business Climate – this major survey of 7,000 businesses has been steadily rising. Last month’s 95.8 score is expected to be followed by 96.3, continuing the steady uptrend seen throughout the past year.