EUR/USD: Trading the U.S. Housing Starts Report

What’s Expected:

Time of release: 06/16/2011 12:30 GMT, 8:30 EST

Primary Pair Impact:EURUSD

Expected: 545K

Previous: 523K

DailyFX Forecast: 500K to 560K

Why Is This Event Important:

Housing starts in the U.S. are expected to expand at an annualized pace of 545K in May, and the rebound in building activity could spark a bullish reaction in the dollar as growth prospects improve. However, a 1.1% decline in building permits could produce a mixed reaction in the greenback, and we will certainly stick to the sidelines should we see choppy price action following the release. Nevertheless, a rise in construction should help to instill a promising outlook for future growth, and the Federal Reserve may raise its assessment for the world’s largest economy as the recovery gathers pace.

Recent Economic Developments

The Upside

The Downside

Heightening demands for newly built homes paired with the ongoing expansion in consumer credit could spur a marked increase in building activity, and the Fed may see scope to start normalizing monetary policy later this year as private sector activity picks up. However, as confidence amongst U.S. homebuilders slip to a nine-month low, the drop in household sentiment paired with the ongoing weakness in employment may continue to bear down on the housing market. In turn, the central bank may look to retain its zero interest rate policy throughout the remainder of the year, and Fed Chairman Ben Bernanke may continue to talk down speculation for a rate hike later this year as the fundamental outlook remains clouded with uncertainties.

Tags: forecast event expected expand reaction growth developments upside