Dollar Shrugs off Much Weaker than Expected Housing Starts

Dollar shrugs off much worse than expected housing data and recovers mildly against European majors in early US session after oversold condition. Both housing starts and building permits came in below expectation in Jan. In particular, housing starts dropped sharply by 14.3% to an annualized rate of $1.408m, far below consensus of $1.60m which is the lowest reading since Aug 1997. Building permits dropped 2.8% to $1.568m. However that the worse than expected housing data was mainly due to cold weather, which was not something really out of expectation. Jan PPI came in basically inline with expectation with headline PPI dropping -0.6% mom, rising 0.2% yoy, core PPI rising 0.2% mom, 1.8% yoy. U of Michigan consumer sentiments will be featured next.


Daily Pivots: (S1) 1.3115; (P) 1.3143; (R1) 1.3168;


EUR/USD’s rally was limited at 1.3171, inch below mentioned fibo resistance of 61.8% retracement of 1.3364 to 1.2865 at 1.3173. Subsequent retreat has pushed EUR/USD to below 1.3116 minor support with 4 hours MACD dragged below signal line, indicating that a short term top is formed at 1.3171 already. At this point, further pull back is expected towards 4 hours 55 EMA (now at 1.3042. However, downside should be contained above 1.3022 support and bring rally resumption. On the upside, break of mentioned 1.3173 fibo resistance will indicate recent rise has resumed and encourage further rally to 1.3296 resistance.

In the bigger picture, decisive break of 1.3052/57 cluster resistance (38.2% retracement of 1.3364 to 1.2867 at 1.3057) indicates that the whole decline from 1.3364 has already completed at 1.2865. Also, it saves the case that medium term up trend from 1.1639 is still in progress with EUR/USD kept inside the medium term rising channel (lower channel at 1.2793 now). Break of 1.3296 resistance will indicate the rise from 1.2483 has possibly resumed and EUR/USD could make a new high above 1.3364 before finally making a medium term top.

However, with bearish divergence condition in weekly MACD and RSI, upside of the current rise could be limited in the medium term. But a break below 1.2939 is needed to reinitiate short term bearishness first. Break below 1.2865 again will confirm that the whole fall from 1.3364 has resumed. In such case, focus will then be switched back to 1.2760 support and 1.2483 cluster support (50% retracement of 1.1639 to 1.3364 at 1.2502) again.

EUR/USD 4 Hours Chart - Forex Education, Forex Course, Forex Tutorial, Forex eBooks, Forex Training

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Shing-Ip Tsui is the founder and CEO of ActionForex is set up with the aim to empower individual forex traders by providing insightful contents. Analysis reports, live pivot points on majors and crosses, etc are provided with collection of carefully selected educational articles and free trading ebook downloads.