USD holds gains, existing home sales surge 9.4%

USD: Higher, existing home sales surge 9.4%, equity markets trade lower as the data at fails to lift stocks
JPY:Lower, BOJ forecasts that deflation pressures will continue into 2011
EUR:Higher, existing home sales surge 9.4%, equity markets trade lower as the data at fails to lift stocks
GBP: Lower, UK Q3 GDP posts a surprise decline, early withdrawal of stimulus unlikely
CAD and AUD: AUD & CAD lower, Australia's import/export prices decline, BOC says intervention an option
OverviewUSD traded mixed Friday with GBP sharply lower and EUR trading at a new high for 2009. GBP was pressured by report of an unexpected decline in UK Q3 advance Q3 GDP and the EUR was supported by gains in cross trade to GBP and in reaction to report that EU composite PMI rose to a 22 month high. Today’s economic data from Europe shows that the UK economy is still in recession and the EU economy is emerging from recession. The unexpected decline in UK GDP may force the BOE to consider expanding quantitative ease. JPY traded lower pressured by a BOJ report which says that deflationary pressures will continue through 2011. Commodity currencies traded lower despite firmer equity trade in Europe with the CAD pressured by a statement from BOC Governor Carney that intervention is an option and AUD pressured by report of falling Q3 export and import prices. US existing home sales came in much stronger than expected. The USD traded higher in reaction to the strong housing data as the trade debates how much of an impact the expected expiration of the tax credit for first home buyers impacts existing home sales. Some may argue the strength of today’s existing home sale report reflects the pulling forward of home sales because of the tax credit and that when the tax credit expires demand for homes may drop in the same way the demand for autos declined after the expiration of the cash for clunkers program. Bloomberg reports that Nomura research warns that US risks a lost decade like Japan if stimulus is withdrawn too soon. Upcoming US auto and existing home sale data will be a good test of the efficacy of the Nomura warning. At some point the private sector will have to carry the US recovery as government incentives and low prices are the main reason exiting home sales have improved. USD may benefit from speculation that today’s strong US housing data increases the risk of an earlier Fed rate hike. The Fed’s Plosser said he will be one of the Fed members to call for an earlier rate hike.
Today’s US data: Existing home sales for September rose by 9.4% to 5.57 mln units, a reading of 5.35 mln was expected. Inventories of existing home sales dropped 7.5% to a 7.8 month supply. This was the lowest level of inventories in two and a half years. Average home sale price declined by 8.5% to 174,900k.
Upcoming US data: Next week's US economic calendar includes the October 27th release of Case Shiller August home price index expected at -12.1% compared to -13.3% last month. October consumer confidence will also be released on October 27th expected at 54.3 compared to 53.1 last month. On October 28th September durable goods will be released expected at 1.3% compared to -2.6% last month. September new home sales will also be released on October 28th expected 444k compared to 429k last month. October 29th initial jobless claims for the week ending 10/24 we released expected that 525k compared to 531k last week. Advanced Q3 GDP will also be released on October 29th expected at 3.2% compared to -0.7% last quarter. On October 30th September personal income and consumption will be released expected that 0.1% and -0.5% respectively along with Chicago October PMI expected 49.1 compared to 46.1 last month's and final October Michigan sentiment expected unchanged at 69.4