Forex Trading and the 2012 U.S. Housing Market

Building permits have increased consistently all year long peaking at a 4-year high today.

New Home Sales on the other hand, have not been as bullish. They have been consistently around the 320-370 area throughout the year. They are making gradual progress and appear to be gaining momentum. With the implementation of QE3 in September and the recently announced additional buying of $45 Billion per month of treasury security purchases, some have positive expectations for the American housing market in the near future.

QE3’s influence on Forex Trading in 2013 may be overshadowed by the devastation of the fiscal cliff depending on what transpires, but with housing market forecast momentum seeming to build, let’s discuss the fundamental significance of a housing market rally.

Quantitative Easing:
Quantitative Easing (QE3), introduced September 13th set a stage for a supposive and intended boost of the U.S. Economy by annoucing to buy “additional agency mortgage-backed securities at a pace of $40 billion per month”. When the Federal Reserve buys these bonds, they do it by crediting the accounts of the banks they are buying the bonds from. Therefore, rivers of money start flowing into bank’s Fed accounts. By doing this, the banks are encouraged to lend more money to the public through loans and rates can also drop (they have already dropped very low).

In theory, what “should happen” is that people should take out loans for their businesses, families, investing purposes, and other potential reasons. If this works as planned, the economy will be “stimulated”. Stimulus with QE1 and QE2 has not been very effective so far, so trying QE3 doesn’t sound very logical. The reason could be because there are no other options for Bernanke and the Federal Reserve and they want to look like they are doing something. A primary danger of QE3 is that it is unlimited, there is no specific goal in place. The goal is to see the economy “improve substantially”. That means, if there is no improvement, we will keep easing until there is improvement? And if there is still no improvement, we will continue? That is insanity. A vision without a plan is a fantasy, a plan without a vision is insanity. This is a plan (QE3) but there is no definable destination for this plan to take us to. There are two methods of change: vision or pain. Without a vision, I think we are inevitably heading towards something painful.

Fundamental Significance of a Housing Market Rally
If QEternity (QE3) works as intended, loans will be taken out. Buildings will be constructed. The housing market will boom, many buildings will be businesses, jobs will increase, spending will increase, the GDP will increase and everything will be looking great. Will that happen because of QE3? Very unlikely.

You will always want to look for the highest probability trades while participating in Forex trading. If you’re a fundamental long term trader, considering topics such as the housing market is a critical measure to take. For the U.S. I do not think there is enough evidence to suggest sustainable job creation or long term growth. I think the opposite, a weak U.S. economy becoming weaker and the dollar eventually falling after risk aversion has it’s way.

In the near term, these figures could suggest a measure of strength for the U.S. Dollar leading up to the Fiscal Cliff.

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