Drop in US optimism Weakens Dollar

The Euro continued its recovery during the night with the EURUSD hitting highs of 1.4415 (see hourly chart). In thin pre-holiday trading, yesterday’s US New House sales, which plummeted by 11.3% in November to a seven month low, has knocked the gloss of US economic optimism placing pressure on the dollar.

This is a welcome relief for the Euro which has had a torrid month resulting from the sovereign debt concerns of member states such as Greece and Spain. The single currency has fallen more than 900 pips since the start of December to lows of 1.4215 before its recent rebound. In fact, the EURUSD has technically achieved a bullish Stochastic crossover during the night which is the first time it has done so this month.

In the last couple of hours, the YEN has weakened against the other majors with the USDYEN and EURYEN surging to 91.42 and 131.80 respectively. The YEN has also had a difficult month against the dollar by falling more than 600 pips so far.

There are event risks this morning at 8:30 a.m. when both the US jobless claims and Durable goods data are released. The market will, no doubt, evaluate these numbers searching for clues concerning the timing of possible US interest rate increases.