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US Housing Component Remains Subdued

Latest Housing Sector Numbers Point to Continued Anemic Recovery in Economic Fundamentals

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The improving weather conditions have not fomented a rebound in housing data as was forecast, with the permits and starts missing estimates by a wide margin.  When merged with factory data, the faintness in first quarter GDP growth becomes increasingly evident and more likely to impact the rate hike timeline.

US Housing Risks Mount

The expected rebound in housing data now that winter weather has abated failed to materialize as the latest permits and housing starts data missed expectations by a wide margin.  Building permits fell by -5.70% month over month compared to a -2.00% contraction forecast with housing starts climbing a meager 2.00% in contrast to the estimate of 15.90% expansion.  The time for blaming the weather on poor figures has passed and highlights that the housing economy still is not on firm footing and remains on a knife edge.  Meanwhile, Federal Reserve members continue to talk up higher interest rates with Vice Chair Stanley Fischer highlighting that “markets can’t depend on Fed staying on hold forever.”  The big reaction in financial markets was a move to the upside in gold as commentary sent the dollar tumbling.

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No Contagion Risk

Statements earlier in the week from German Finance Minister Wolfgang Schaeuble implied that there would be no contagion from Greek exit and that Germany is ready to let the beleaguered nation go.  However, the impact on other regional economies might not be contained as evidenced by the latest shift higher in peripheral sovereign bond yields over the last several sessions.  The ECB has already prepared to write off 95% of the face value of Greek holdings, proving that Central Bank balance sheets are not “loss proof.”  Greece has meanwhile seen sentiment shift among the populace, with citizens protesting the latest moves in Athens as they become increasingly wary of Syriza backing away from earlier election campaign promises.  The Euro has moved higher against peers as the record amount of Euro shorts makes the situation perfect for a short squeeze.

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Australian Employment Improves

Unemployment figures released from Australia yesterday showed that the economy is managing to improve despite the host of external factors limiting growth momentum.  The jobless rate fell from 6.20% to 6.10%, beating expectations of the rate rising to 6.30%. Although economists and traders are forecasting future interest rate cuts owing to the deterioration in the mining sector and collapse in iron ore prices, the latest economic data runs contrary to estimates, possibly pushing back further monetary accommodation.  The slowdown in the Chinese economy is broadly impacting the Australian outlook, with iron ore prices so depressed that the fourth largest miner has suspended production altogether until prices rebound.  However, with the global economy still in stagnation, a near-term reversal in prices seems unlikely.  The Australian dollar continues to gain as US dollar momentum wanes.

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USDJPY Descending Triangle Technical Pattern

Comments from various FOMC voting members sent the dollar lower against peers despite growing expectations that the Federal Reserve will move to raise rates in 2015.  Coupled with weakening data points, the weakness in the dollar has failed to moderate.  The Bank of Japan continues to maintain policy easing at the present pace and with no expected change to the outlook, USDJPY could fall further before rebounding on higher US interest rates.  The descending triangle technical pattern has a bearish bias with support 118.79 the major level to watch.  Any move below the line should be treated as a breakout trade to be accompanied by greater volume and downward momentum.  If the downtrend line is broken to the upside, a reversal is in play and the pattern has been breached.

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