Fed Rate Decision Shields Dollar From Horrid Housing Data

According to the Standard & Poor’s/Case-Shiller home price index released today, US home prices in 20 cities fell by 12.7% in February compared to a year ago. This decline was worse than the 12% drop expected by many, and steeper than the 10.7% drop posted in January. Record annual declines were seen in 17 of the 20 metro areas. Las Vegas and Miami have the worst declines: Home prices dropped 23% in Las Vegas and 22% in Miami. The only area with a gain was Charlotte which registered a 1.5% increase, defying the overall housing sentiment. February marked the sixth consecutive decline in all the 20 metro areas. The housing situation in the US is unlikely to get better anytime soon, as declining property prices spark off a vicious cycle of less buying interest, more defaults on loan payments, increasing number of foreclosures and eventually more price declines. Incidentally, RealtyTrac reported today that the number of homes going into foreclosures increased 112% in Q1 to 649,917 this year compared to last year. That’s more the double the foreclosure rate in 2007. Americans, unhappy with the erosion of their property prices, are feeling more pessimistic about their spending ability, and this is reflected in today’s release of the Conference Board’s consumer confidence index which fell to 62.3 in April from a prior 65.9 (revised from 64.5). This was slightly better than the 61.5 reading expected. The present situation index dropped to 80.7 from 90.6, while the expectations index rose to 50.1 from 49.4.

Fed Starts Meeting

Bernanke et al are beginning their two-day meeting today, the most probable outcome of which is likely to be a 25 basis points rate cut from 2.25% to 2%. Most traders are sitting on their hands, preferring to let the event pass over before commiting to more positions in the market.

Forex Trading

EUR/USD is lower today, dipping to a low of 1.5540 before bouncing up again to 1.5600, in line with expectations of support around 1.5530-50. Another possible support netting is around 1.5480-1.5510. USD/CHF went up to a high of 1.0400, and has yet to overcome resistance around 1.0430, followed by 1.0460 then 1.0500. GBP/USD fell 200 pips today, sliding towards 1.9700 on weak UK data showing consumer lending slowing to its lowest level in nearly six year and mortgage approvals falling to a record low.

Wednesday:

Eurozone CPI estimate, unemployment rate 0900 GMT

US MBA mortgage applications 1100 GMT

US ADP employment 1215 GMT

Canada GDP 1230 GMT

US GDP, core PCE 1230 GMT

Chicago PMI 1345 GMT

FOMC rate decision 1815 GMT (rate expected to be cut to 2% from 2.25%)

Subscribe by RSS Subscribe by Email