USD/JPY: Trading the US Pending Home Sales Aug 2013

US Pending Home Sales, a key leading economic indicator, is an important gauge of activity in the housing sector and of consumer spending. A higher reading than forecast points is bullish for the dollar.

Here are all the details, and 5 possible outcomes for JPY/USD.

Published on Wednesday at 14:00 GMT.

Indicator Background

Pending Homes Sales provides analysts and investors with a snapshot of the activity and direction of the US housing sector. As a house is likely to be the largest purchase that a consumer will make, this indicator also helps analysts gauge consumer confidence and spending.

The July reading of -0.4% was a weak one, as it was the indicator’s first decline since March. However, it did beat the market estimate of -1.1%. The markets are expecting a stronger release in August, with a modest gain of 0.2% as the estimate.

Sentiments and levels

Speculation continues to increase about when the Federal Reserve might taper QE, and this has helped the dollar. The Federal Reserve hasn’t given any hints about timelines, but the markets are looking for some action on this front as early as September. Japanese releases looked sluggish last week, and a repeat performance would likely result in the yen losing even more ground. The dollar has enjoyed broad strength and this trend could continue. So, the overall sentiment is bullish on USD/JPY towards this release.

Technical levels, from top to bottom: 101.44, 100.85, 100.00, 98.90, 97.80 and 96.71.

5 Scenarios  

1. Within expectations: -0.1% to 0.5%: In such a case, the USD/JPY is likely to move within range, with a small chance of breaking higher.
2. Above expectations: 0.6% to 1.0%: An unexpected reading into positive territory can send USD/JPY above one resistance line.
3. Well above expectations: Above 1.0%: A sharp increase in housing sales could push the pair above a second resistance line.
4. Below expectations: -0.6% to -0.2%: A reading lower than forecast could send the USD/JPY below one support level.
5. Well below expectations: Below -0.6%: A decline in the reading would signal contraction in the housing sector. In such an outcome, the pair could break a second support level.

For more on the yen, see the JPY/USD.

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