Dollar falls on housing data

By Steven C. Johnson and Wanfeng Zhou

NEW YORK (BestGrowthStock) – The dollar fell against the euro on Monday as data showing U.S. homebuilder sentiment slumping to a 15-month low stoked fears that the U.S. economic recovery was running out of steam.

The euro traded near a recent two-month high against the dollar, rebounding from earlier lows hit after Moody’s cut Ireland’s debt rating while negotiations between Hungary and international lenders broke down.

Demand for the dollar fell after the NAHB/Wells Fargo Housing Market index fell more than expected in July to its lowest level since April 2009 after a popular tax credit for homebuyers expired in April.

The report was the latest in a string of data that has flashed warnings about the state of the U.S. economy and quashed expectations of a Federal Reserve interest rate hike this year.

“The euro is simply trading on U.S. weakness,” said Joseph Trevisani, chief analyst at FX Solutions in Saddle River, New Jersey. “We’ve had two or three weeks of increasingly poor U.S. statistics and that’s really the issue now.”

Analysts say markets are particularly sensitive to housing data as the sector’s deterioration was a major reason for the U.S. economy’s descent into recession and will be a crucial component of a lasting recovery.

The euro was up 0.4 percent at $1.2844 after earlier hitting a session low of $1.2872. Traders said a large buy order from the Middle East, executed through a major U.S. bank in London had lifted the euro to a session high of $1.2991.

The euro rose 0.5 percent to 112.22 yen and also rose against sterling while the dollar added 0.1 percent to 86.69 yen, bouncing back from Friday’s seven-month low.

BANKS AWAIT THEIR GRADES

Investors also awaited the results of stress tests on 91 European banks due on Friday.

Bankers and officials in Greece, Spain and Belgium joined a chorus of countries expecting their banks to pass European stress tests, but doubts linger over whether the health checks are tough or transparent enough.

“We expect the stress test to be well received, but its main effect on the euro will be to reduce the probability of a large downside move,” said Raghav Subbarao, currency strategist at Barclays Capital.

Some analysts said a recent rebound in the euro, which hit a two-month high of $1.3008 on electronic trading platform EBS on Friday, may have been overdone.

“The euro’s recent strength has been exaggerated by positions, as people scale back from extremely short positions,” Subbarao said.

The latest data from the Commodity Futures Trading Commission showed speculators positions have been increasing long in the yen while cutting longs in the dollar, especially against the euro and pound.

Kathy Lien, director of research at GFT Forex in New York, said the euro’s break above the 100-day simple moving average around $1.29 last week bolstered demand for the currency.

Technical analysts saw near-term support at around $1.2850, the 50 percent retracement of the euro’s fall from a high near $1.3820 in March to a four-year low of $1.1876 in early June.

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Dollar falls on housing data