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U.S. Dollar Shrugs Off CPI and Housing Starts

Last updated 11/18/2009 8:54 AM ET (GMT -5) 6 Comments

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Kathy Lien

Director of Currency Research, GFT

This morning's mixed U.S. economic reports had a limited impact on the U.S. dollar.  Based upon the consumer price index, inflationary pressures increased in October.  However housing starts and building permits took a big tumble which indicates that one of the first sectors to bottom in the U.S. economy is beginning to show pockets of weakness.  Housing starts fell 10.6 percent to the lowest level since April while building permits dropped 4 percent to the lowest since May.  The market had anticipated increases in both releases, but as we suggested in our Daily Report last night, the sharp decline in builder confidence in October points to weakness in the housing market. There is a lot of inventory on the market and more set to hit over the next year and therefore the lack of demand is discouraging new projects.

Meanwhile consumer prices rose 0.3 percent in October with prices excluding food and energy rising 0.2 percent.  On an annualized basis, prices are still slowing albeit at a much more moderate rate.  In October, year over year CPI fell 0.2 percent compared to the prior year which represents a marked improvement from the -1.3 percent drop in September.  With commodity prices rising, it is not surprising to see the upside pressure on consumer prices.  However outside of the contribution from food and energy, there was also a notable increase in car prices and airline fares.  

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Gold

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Comments (6)

Stephan Smith

November 18, 2009 at 09:42 AM ET

Just more reason why the USD should get weaker. Looks like GOLD will continue to rise and the EUR/USD is going right back up to $1.50. It will be interesting to see if it will break pass that resistance point.

Stephan Smith

November 18, 2009 at 10:01 AM ET

Wow - GOLD just hit the $1,150 mark. Those Gold bugs should are driving up those prices.

hsbc

November 18, 2009 at 10:10 AM ET

why should gold price rise lead to higher eur?

FxZ

November 18, 2009 at 10:38 AM ET

Hi,
about the Gold Eur and Usd, shouldn't they be correlated? i mean if the dollar gets weaker the EurUsd raise the same should be for XauUsd, i am wondering why yesterday the EurUsd was bearish whilst the XauUsd bullish?
Thanks

FxZ

November 18, 2009 at 10:50 AM ET

i thought the Eur could have been devaluated more than the dollar so XauUsd up EurUsd down but looking at yesterday rates EurChf was almost stable,
ok was the gold which raised overall but XauUsd raised more tha XauEur,
Thanks

hsbc

November 18, 2009 at 05:47 PM ET

lower usd (and thus eur) leads to higher gold prices. but higher gold prices do not lead to higher eur. i think u are mixing up the cause and effect

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About The Author

Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank's interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Boris Schlossberg.

To buy Kathy’s newly updated Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, click here.