Inflation is in many ways the elusive enemy of central banks throughout the world.Much progress has been made over the decades. In the period of 1973 through 1987,inflation levels in industrialized countries were near the 7.5 percent range. A decadelater, in 1989, inflation levels ranged at the much lower level of 3 percent. Today, allyou have to do is read the central banks’ public documents to realize that their majormission is to contain inflation. Many central banks, in fact, announce inflation targets. Infact, Bernard Bernanke,...

As discussed earlier, housing provides a strong indicator regarding interest ratesthroughout the world. For example, as 2006 ended, the situation in Great Britain regardinghousing indicated a very strong housing market and therefore supported sentimentof interest rate increases by the Bank of England. In 2006, housing prices inflatedby nearly 10 percent in Great Britain. Economist Diana Choyleva believed pricescould rise by as much as 15 percent in 2007. But she warned that if the Bank of Englanddid not prevent people’s taking...

Another way for the forex trader to get a grip on housing data is to watch equities that arehousing related. For example, Lennar Homes is a leading home builder. Its stock priceand earning forecasts offer good clues regarding the direction of the housing market andby inference interest rate policies (Figure 1.3). In April 2006, Lennar homes broke downbelow its support at $55 per share. Lennar Homes’ weakness was an omen about theend of...

One can argue that economic data on housing activity is lagging and that a trader needs tofind indicators that are more coincident with activity or even leading. A valuable sourcefor assessing housing activity in the United States is the survey releases of the NationalAssociation of Housing Builders (NAHB). According to the NAHB, “The Housing MarketIndex (HMI) is based on a monthly survey of NAHB members designed to take the pulseof the housing industry, especially the single-family industry. The survey asks respondentsto rate...

What is important to realize about fundamental analysis of housing sector data is that thetrader can identify pending changes in trends and direction of the economy. Of course, itis true that forex prices move all the time in reaction to news and the like, but economiesdon’t change direction overnight. By understanding housing data, one can develop a fundamentalviewpoint that leads to trading strategies before technical price patterns reflectthe change.For example, in Table 1.1 we see data on U.S. new housing starts. The year...

Fundamentally, however, one of the most important categories of economic data aroundthe world, which is sensitive to interest rate changes, is housing data. The housing sectorin the United States, as well as other nations, provides a major share of wealth, consumerspending, and job creation. Recent years have seen an international housing boom, withprices growing at more than 10 percent per year in many countries. For example, Irelandgrew at 15 percent in 2006; Spain’s growth actually slowed down to 13 percent. Canada,Norway,...

Interest rates are the “dough” of the fundamental forex pie. They are one of the most important factors that affect forex prices, as interest rates are the modern tool that central banks use as a throttle on their economies. The central banks of the world do not hesitate to use this important tool. In recent years almost all of the central banks increased interest rates. The European Central Bank raised interest rates eight times from December...