US Dollar to Face Lower Volumes

The National Association of Realtors’ index of existing home sales is expected to have risen 2.3 percent in the month of October to an annual rate of 5.7 million, the highest in just over two years. Other factors to keep in mind are supply levels and median prices, both of which have fallen steadily to 7.8 months and $174,900, respectively. Disappointing US housing starts from last week don’t bode well for the index, but since the Federal government’s homebuyer tax credit program was extended to April 30, 2010 and the income ceiling for single taxpayers was raised to $125,000 from $75,000, housing conditions should improve further until the start of Q2 2010.At 8:30 ET, the second round of third quarter GDP results for the US are anticipated to be disappointing as the index may be revised down to an annualized 2.9 percent from 3.5 percent. That said, such a result would still mark the first expansion in the economy in five quarters and the best reading in two years. As a result, the impact of the news on FX market price action may be limited, unless of course the data is significantly weaker than expected or if there are no revisions at all.Then, at 10:00 ET, the November reading of the Conference Board’s measure of US consumer confidence is expected to slip to a six-month low of 47.0 from 47.7, but overall, there are some downside risks for this report. Indeed, the preliminary reading of the University of Michigan’s consumer confidence index showed that sentiment surprisingly deteriorated in November, with the index falling to 66.0 from 70.6. Overall, disappointing numbers could have especially negative repercussions for risk appetite, but if the index rises in line with expectations or proves to be surprisingly strong, FX carry trades could gain and weigh on the US dollar.The main event risk for the US dollar on Wednesday will be the release of the minutes from the Federal Reserve’s last meeting on November 3 and 4. Following that meeting, the US dollar fell as they announced that they had left the fed funds rate unchanged at 0.25 percent, as expected, and stated that rates were like to remain “exceptionally low” for an “extended period.” At the same time, the FOMC said that they had reduced their planned purchases of agency debt to $175 billion from $200 billion, but repeated that they would be completed by the end ofQ1 2010. If the minutes reflect a perceived focus on exit strategies, there is potential for the greenback to rally, but if the FOMC members prove to be uneasy about the outlook for growth or the need to expand quantitative easing down the road, the currency is likely to tumble.The second reading of UK GDP for the third quarter is anticipated to be revised slightly higher to a quarterly rate of -0.3 percent from -0.4 percent, and an annual rate of -5.1 percent from -5.2 percent. This will continue to reflect the sixth straight quarter of contraction, and the only way the British pound is likely to respond in a positive way is if GDP surprisingly rises on a quarterly basis. Indeed, a disappointing number would have the biggest impact on the British pound, especially now that we know from the minutes from the Bank of England’s last policy meeting that the Monetary Policy Committee may be open to expanding their quantitative easing program once again.The upcoming release of US durable goods orders is projected to show a 0.5 percent increase in October following a 1.4 percent increase in September (revised from 1.0 percent), and excluding transportation the index is forecasted to rise by 0.7 percent. There may be some downside risks, though, for the non-defense aircraft orders component as Boeing orders fell further during October. While the headline result will have the most impact on forex trading, the markets should keep an eye on non-defense capital goods orders excluding aircraft, as this number serves as a leading indicator for business investment. This component rose in September for the first time in three months, and a continuation of this dynamic would bode well for growth in coming months.Event risk in the coming week will be contained mostly to the US dollar, as NAR US existing home sales, revised US Q3 GDP, US consumer confidence, the FOMC meeting minutes, and US durable goods orders will all be released. Meanwhile, the British pound will encounter potential revisions to UK Q3 GDP, but the overarching theme for the week may lie more in price action as US markets will be closed on Thursday for the Thanksgiving holiday and will close early on Friday. As a result, volumes will be lower than usual and this may contribute to either flat price movements or extremely choppy trade.