Quiet Asian session should see the Dollar gain in early EuropeTokyo Condominium Sales continued to decline in September reported the Real Estate Economic Institute. The month saw a decline of -19.8% YoY following a rise of +1.9% in August which has been the only positive month this year. In many ways the decline is not too much of a surprise with the prior boom coming from the reclamation of land in Tokyo Bay on which developers have built large residential projects – and being reclaimed land at comparatively lower prices. This has now dried up to leave a severely reduced stock of land on which to build such developments. The average price of an apartment in a condominium has risen 7.5% over the past year. However, no impact on the yen is expected.
On the subject of housing the government-sponsored mortgage companies Fannie Mae and Freddie Mac have forecast that the current U.S. housing slump is not about to reverse. Indeed, they see the risk that prices will continue to decline into 2009 with the size of inventory much too high to allow a quick rebound. U.S. house prices are expected to register a 2% fall this year and they feel this will double to a 4% decline next year.
This dovetails with comments from Bernanke who highlighted the contraction in housing as providing a significant drag on growth in the current quarter and through early next year. “It does seem pretty clear that the housing market downturn isn't over,” he said. “The further contraction in housing is likely to be a significant drag on growth in the current quarter and through early next year.”
On the impact of the subprime induced credit squeeze Bernanke commented “It remains too early to assess the extent to which household and business spending will be affected by the weakness in housing and the tightening in credit conditions.” However, he noted that the subprime problems do not appear to have spilled over into the rest of the economy.
The housing sector was weakening even before the credit crunch began in early August, and conditions in the mortgage sector remain out of whack two months later, Bernanke said. The labor market has shown some signs of cooling, but these are quite tentative so far, and real income is still growing at a solid pace. This should pull down growth in the fourth quarter and into 2008, he said but on the longer term outlook he refused to be drawn, only commenting “so far so good.”

The following economic releases are due today:
August
Swiss Adjusted Real Retail Sales (YoY) +4.1%
September
German CPI (Final) (MoM) +0.2%
German CPI (Final) (YoY) +2.5%
U.K. CPI (MoM) +0.3%
U.K. CPI (YoY) +1.9%
U.K. CPI Core (YoY) +1.8%
U.K. RPI (MoM) +0.4%
U.K. RPI (YoY) +4.0%
U.K. RPI Excl mortgage payments (YoY) +2.8%
Euro-zone CPI (MoM) +0.4%
Euro-zone CPI (YoY) +2.1%
Euro-zone CPI Core (YoY) +1.9%
U.S. Industrial Production +0.1%
U.S. Capacity Utilization 82.1%
October
German ZEW Survey: Economic Sentiment - 22.3
German ZEW Survey: Current Situation +70.0
Euro-zone ZEW Survey: Economic Sentiment - 25.0
U.S. NAHB Housing Market Index +19.0

The underlying view was sort-of right yesterday although we had to endure some early softness in the Dollar first. However, overall in terms of the pattern I was looking at we are now towards the end of the Dollar recovery as far as I can see. It should continue a little more in European trading but while key resistance areas stall the process it does seem to point to Dollar weakness (against the Europeans) and this time it should move through much stronger.
For the Euro this should mean a move back to the 1.4281 high and over time it should break to new highs. For the Swissie this should mean a return to the 1.1621 area but this could take a little longer – and would likely only be seen some time after the Euro has broken above 1.4281. And for the Pound, with the strong recovery yesterday there seems to be risk of a move above the 2.0493 corrective high and up to 2.0593 at least.
Of course, the opposite is true for Dollar-Yen. Here too it looks like we’re seeing the completion of a complex correction that will find it tough to get much below 116.79 I think. At most 116.47 though this seems a bit far to be honest. The next leg higher should move right up to 118.93. Watch Euro-Yen along with this which sees support around 165.84-00 and this should be followed by a move back to 168.42 and 168.93.
The Aussie has a similar pattern – keep in mind the ultimate 0.9240-70 target. As for the Canadian Dollar, the bounce from 0.9705 came perfectly and seems to suggest a long term base is in place. However, what concerns me here is the general U.S. Dollar bearish view I have and how the views of Dollar-Europe and Dollar-Canada conflict. Watch the 0.9800 resistance here – only above will keep the move going and more likely we should see a correction at first

Note important support and resistance areas:
USDJPY EURUSD USDCHF GBPUSD
Res: 118.57-93 1.4281-00 1.1861-93 2.0493-29
Res: 117.73-93 1.4215-19 1.1826-32 2.0436-73
Spt: 117.10-15 1.4165-91 1.1764-85 2.0375-04
Spt: 116.47-70 1.4127-46 1.1707-25 2.0289-17
See Also