Slump in Pending Home Sales Reapplies Chokehold on US Dollar Index

Summary:

The US Dollar index declines once more after a drop in the number of pending home sales by nearly two-thirds of May's figures. FOMC is next in focus.

The US Dollar Index came under pressure once more after a month-on-month decline in pending home sales. Although the 16.6% increase in contracts signed for future home sales exceeded the market expectation (15.6%), it was a significant drop from the 44.3% registered for last month.

Consequently, the USD Index, which had staged a slight recovery yesterday, went into full selloff mode once more and is currently down by 0.3%.

The 2008 global financial crisis, which was triggered by the collapse in the subprime mortgage industry, caused a shift in the US housing market away from homeownership to the rental market. However, the coronavirus pandemic has put the rental market under severe strain, with many Americans only able to pay their rents via the stimulus checks. Unless the US Congress approves an extension, the cheques could start to dry up in September and could put as many as 20 million Americans at risk of eviction. The home sales data have become an essential indicator of the recovery of the US from the economic effects of the coronavirus pandemic. The drop in the figures for June indicates that the economy still has a long way to go in the recovery pathway.

Markets are now tuned to the FOMC’s statement and the speech by the Fed Chair after the rate decision, coming up at 6 pm GMT and 6.30 pm GMT respectively.

Outlook for USD Index

The US Dollar Index is trading at 93.45 and is on the way towards the next support target at 93.17. This follows yesterday’s candle close below the 93.80 support, thus delivering the time filter confirmation of the breakdown of the 93.80 support. A dovish action from the FOMC could put the 93.17 support in danger of being taken out. If this happens, 92.50 could be the next target on the cards.

On the flip side, if the Fed fails to deliver a dovish outcome later today, we could see recovery towards 94.62 and 95.19, pending a break of the 93.80 price level which now functions as a resistance.