Talking Points:

– Housing bubble : higher permits but lower sales, lower starts, lower mortgage apps

– Inflation fears, premature hawkish fed

– FED chair to testify

MARKETS have started the week with a spike in the vix to touch 25 indicating further volatility increase to be seen during the week. U.S futures indices started the session in the red along with major Asian indices.

 The most common risk theme driving markets fear is the recent surge in inflation at a speedy momentum in many countries of G20 especially United states and Europe, which means for markets a premature wave of hawkish central banks.

Another risk theme that we consider at is the recent divergence in housing market data.

Where January building permits have reached 1881 thousand units at an annual rate, an increase by 177.000 from prev month and 345 from prev year. Whereas housing starts marked a decline of 100.000 units from prev month and 37.000 from previous year.

us housing market

This sort of divergence is worth watching carefully, especially if we add to it the recent climb in mortgage rates that made its bottom in early January at 2.65% and now is at 2.81%.

us mortgage rate fred

Other housing indicators:

NAHB housing market index:  all time high in November at 90   => February data: 84

MBA Mortgage Applications: second consecutive week of decline by 4.1 and 5.1 respectively

S&P/Case-Shiller U.S. National Home Price Index are continuing to trend higher making new all time highs.

major market movers

Major upcoming event this week is the Fed Chair Powell  to testify on Tuesday and Wednesday February 23/24th on the Semiannual Monetary Policy Report before the House Financial Services Committee, in Washington DC

Chair powell is expected to keep the same stance on monetary policy promissing not to raise rates until we got inflation above 2% for a little more time along with other full employment targets to be met before any thinking about thinking about rising rates.

PCE price index on Friday is another important element in the us economic calendar to measure the inflation path and momentum.

DXY Technical setup

regarding those fundamental issues and actual risk themes, the DXY forward direction is not yet clear.

for the time being the U.S dollar index is landing on a long term support at around 90.00 .

last time the price reached that support level was in january-2018 and it took four months befor the DXY leaves this zone and turned upward.

with the actual situation the price has already made its third month on that level and is likely to consolidate further until the view gets much clearer.

on the daily chart we see a price accumulation within a wedge, and probably the next move would carry a strong momentum either to the upside or the downside, but generally it still takes much time befor the real big move takes place.

dxy daily