Gold Reverses Down on Bullish U.S. Housing Data

U.S. New Home Sales surged to a 5 ½ year high in January, sending the U.S. Dollar sharply higher. According to the U.S. Commerce Department, sales jumped 9.6 percent to a seasonally adjusted annual rate of 468,000 units, the highest level since July 2008. Analysts were looking for a decline from 414K to 406K. The 414K figure from December was also revised upward to 427K.

The sharp rise in the Greenback triggered a reversal in April Gold prices. The potentially bearish chart pattern suggests a short-term top is forming. Not only did gold fall from $1345.60, but it also took out a Fibonacci level at $1335.50, indicating that the selling may be greater than the buying at current price levels. The daily chart indicates that $1321.30 is the next downside target.

April crude oil is rebounding after yesterday’s sell-off. Speculators are taking the market higher despite a stronger dollar. Since crude oil is dollar-denominated, the stronger dollar will make oil expensive for foreign traders. Today’s supply and demand report could influence the price action. Traders are looking for the sixth consecutive increase in supply today in the Energy Information Agency weekly report. Since they have ignored the previous increases, it’s difficult to determine how investors will react to negative news today.

The EUR/USD plunged today after the bullish U.S. new home sales report was released. The Forex pair cleared a key 50% price level at 1.3728, driving it sharply lower. If downside momentum continues then look for an eventual move into a retracement zone at 1.3624 to 1.3589.

Not only is the stronger dollar putting pressure on the market, but speculators are piling on in anticipation of additional stimulus from the European Central Bank next week.

The GBP/USD is also under pressure today because of the bullish housing data. Early in the session the U.K. reported that Second Estimate GDP came out unchanged at 0.7%. This wasn’t good news for the bulls who expected stronger growth. Given the recent weak consumer inflation figure and the steady GDP number, it looks as if the Bank of England will continue to leave its benchmark interest rate alone. This could lead to further liquidation by speculators.