U.S. Housing Data Pressures EUR/USD, GBP/USD

The EUR/USD plunged to a new nine-month low after a report showed U.S. housing starts reached their highest level in eight months. The report was proof that the recovery in the U.S. economy is gaining traction.

Today’s housing starts report showed a gain of 1.9M versus a forecast of 0.97M. Building permits rose to 1.5M. Traders were looking for 1.0M. Core CPI came in at 0.1%, below the 0.2% estimate. Core CPI excludes food and energy prices. In July month-to-month inflation rose a seasonally adjusted 0.1%. Food prices rose 0.4%, but energy dropped by 0.3%.

The report helped drive up U.S. interest rates which made the dollar a more attractive investment. This also helped pressure the British Pound. The GBP/USD reached a new four-month low after U.K. inflation slowed.

The report showed the annualized rate of price growth in the U.K. fell to 1.6 percent in July from 1.9 percent the previous month. Traders had priced in a 1.8 percent forecast. The inflation news dampened talk of an early interest rate hike by the Bank of England.

The strong housing data offset the steady-to-weaker inflation data, driving up the U.S. Dollar. The rise in the Greenback helped pressure the dollar-denominated gold market.

The drop in December Comex Gold prices put the market in a position to weaken further according to the daily chart. A sustained move through $1293.00 today is likely to trigger a move into the next major support target at $1282.10 to $1281.00.

October Crude Oil weakened further. High supply and low demand continued to be the catalyst behind the weakness. The easing of geopolitical concerns also helped increase selling pressure.

Today’s strong housing data suggests the U.S. economic recovery is building strength. This is helping to drive up interest rates and demand for the U.S. Dollar. As the dollar rises, the pressure should continue on foreign currencies and commodities. If tomorrow’s release of the Fed minutes reveals a hawkish tone by the central bank then look for the dollar to rally further.