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Dollar bears are in control today as weaker housing market data confirms Fed President Duke's warning that the headwinds in the housing market are relatively strong. Pending home sales dropped 16 percent in November, the sharpest decline since the National Association of Realtors starting tracking the data in 2001.  This latest report breaks the consistent rise in pending home sales seen between Feb and October.  Given the stronger existing home sales report and weaker new home sales report, the state of the housing market was a bit unclear but the drop in pending home sales suggests that the housing market may not be as resilient as everyone expects.  Although factory orders rose 1.1 percent, traders discounted the upside surprise after Monday's stronger than expected ISM manufacturing report.  The risk was in pending home sales and the disappointment proved to be a bigger market mover for the U.S. dollar.

Yen Shrugs Off Japanese Finance Minister Fujii Resignation

Meanwhile the dominant story today is Yen strength. The Japanese Yen appreciated against every major currency. The move can be partially attributed to the comments from a senior Chinese official who said the Yuan is facing a new round of appreciation pressures and expectations for stronger Yuan could attract speculative flows. As a proxy for Asia, some traders will express their Yuan views through the Yen.  Demand for the currency was so strong that traders even shrugged of news of Finance Minister Fujii's plans to resign due to health problems.  During the holidays, Fujii who is 77 was admitted to the hospital due to fatigue after compiling the national budget for the next fiscal year.  Interestingly enough, the Yen has strengthened and not weakened.  If U.S. Treasury Secretary Geithner resigned for whatever reasons, the dollar would probably weaken significantly due to uncertainty surrounding his potential replacements. The lack of concern by Yen traders could reflect Fujii's popularity and effectiveness.

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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.