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Strong Housing Data Helps USD Ahead of Jackson Hole

Published August 24, 2016
  • A quiet overnight session as we approach the North American open sees the US dollar trading slightly higher on a trade weighted basis with a 0.2% gain for the USD index
  • USDCAD is back into the mid 1.2900's, holding just below key levels of technical price resistance that if broken may be a strong sign that the US dollar is set to make further gains against the Loonie
  • Helping the USD this week was a report yesterday that showed new home sales in the US rose to their highest level since 2007
  • Given the current state of low interest rates and low unemployment, it is not surprising that demand for housing would be increasing and the report likely has interest rate hawks and USD bulls salivating at the possible implications
  • This Friday, the world's central bankers meet in Jackson Hole to discuss the state of global monetary policy; Fed Chair Janet Yellen will be delivering a speech in which she is expected to discuss the timing of future rate increases as well as the current economic landscape
  • At present, there is a 16% chance of a hike in September and a 50% chance of a hike in December so any language from Yellen which indicates a less neutral stance has the potential to spark a US dollar surge
  • Recently, the Fed has sounded rather aligned in its view that the underlying economy suggests a rate hike is warranted, with Vice Chair Fischer and Regional Presidents Dudley and Williams all noting that the economy is near full employment 
  • If Yellen comes close to mirroring the spirit of those comments, then we could easily see USDCAD back above 1.3000 before the week is out
  • Crude prices continue to take it on the chin this week with another 2% drop this morning, despite news that Iran will be attending OPEC talks in September (which some see as positive sign that an agreement on production quotas is closer to reality)
  • Crude oil inventory data from the US EIA is out at 1030am ET this morning and if the data confirms Tuesday's API report which showed a build of 4.5M barrels, it could very well compound fears that the recent increase in rigs working across US formations will reverse the progress of domestic re-balancing

Charts: (1) USDCAD back to range trading as uptrend broken – need to get above 1.2930 short term and 1.3000 medium term for bulls to take over. (2) Oil prices pulling back as supply/demand concerns return. (3) Economic Calendar is dominated by the US this week.