Housing is flashing warning signs just as the Fed weighs more interest rate hikes
The recent data on the U.S. housing market highlights a significant downturn, with poor performance in building permits, new construction starts, and pending sales falling short of Wall Street expectations. This deterioration raises concerns about economic resilience just as the Federal Reserve considers further interest rate hikes. The fluctuating strength of the USD may be tempered in the near term as weaker housing data reduces the likelihood of immediate Fed action, potentially altering the trajectory of future monetary policy. This context could prompt traders to reassess their positioning as they digest the implications of a softer housing market.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). CNBC's view aligns more closely with the upper third — JPMorgan and ING share that framing.
How firms align
JPMorgan currently supports this view with a target of 1.10, indicating a potential bullish outlook given the influence of deteriorating economic data on Fed policy. Conversely, BofA contradicts this perspective with a more conservative target of 1.04, reflecting concerns about the immediate risks to the dollar's strength.
What the data shows
Recent data revisions and insights suggest that housing market weaknesses could have longer-lasting impacts on Fed policy, a theme captured in our recent research on the effect of economic indicators on currency valuations (/research/housingimpact).
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Weak housing data raises doubts about immediate Fed rate hikes, capping USD strength.
- 02Traders should stay alert to how housing indicators may impact Fed sentiment.
- 03Monitor USD levels around 1.075 as market reactions unfold in response to economic data.
Market implications
With the consensus target for EUR/USD at 1.075, traders should watch for key resistance near 1.08. Upcoming Fed communications or housing reports could further influence market sentiments and positioning.
Risks to this view
A surprising rebound in housing data or stronger-than-expected economic indicators could lead to a rapid reassessment of Fed tightening timelines, potentially reversing current currency movements.
Sentiment by currency
USD+EUR JPY GBPComposite USD score: +0.65
Sources & References
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