USD Awaits Other Side of US Home Sales

8:30 am Feb Durable Goods Orders (exp 1.2%, -10.0%) 10:00 am US Feb New Home Sales (exp 1.2 mln, prev 1.233 mln)

Traders brace for the February release of US new home sales, following the unexpected 5.1% increase in existing home sales, which resulted from milder than usual weather allowing buyers to complete the contracts of homes and cool any worries of an impending acceleration in the housing sector. The speculation especially arose after week’s 2.3% drop in mortgage applications to a 3-year low, and down 20% from last year’s peak. New home sales are expected to have slipped 2.7% to 1.2 mln after a 5% drop in January to a 12-month low.

The dollar’s sharp rally in reaction to Thursday’s US data reflects a 100% chance of a 25-bp rate hike in May, hence, the 3-bps differential in favor of 2-year yields over 10-year yields, reflecting the inverted yield curve and further Fed tightening. We think than an unexpected rise in new home sales could be dollar supportive but limited to 1.1950 against the euro and 118.30 against the yen. We see more chances for a euro rebound later in the session than in the yen.