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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