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Housing Sector Data As a Leading Indicator in Forex Trading

Housing Sector Data As a Leading Indicator in Forex Trading

Housing data is one of the most important components of projecting currency moves and in anticipating a change in the interest rate policies. Interest rate changes affect the currency pairs drastically. Rather, whatever market you trade, interest rate plays a pivotal role in all financial markets. Interest rate increase always appreciates a currency while an interest rate decrease causes depreciation.

As a forex trader, you should anticipate these interest rate changes. The best way to anticipate interest rate changes is by watching the housing sector. Now, housing sector is a reliable indicator in almost every country that has a floating currency.

A weak housing market portends a decrease in the interest rate by the Central Bank while a strong housing market raises fears of inflation and a likely increase in the interest rate. As a currency trader, you need to keep an eye on the key sources of housing data and develop a focus on key indicators for each currency pair.

Now, you need to know whether the USD (US Dollar) is bullish or bearish. You can form an opinion on the market sentiment about USD by watching the housing equities. Housing equities can give a lot of information about the US housing sector and how it is expected to do in the near future. One of the best known housing market stock is KB Homes. KB Homes is one of the largest single family homes builder in the US. The stock prices of KB Homes can be taken as a leading indicator of the performance of the US Housing Market. If the stock is doing well, you can take it as a sign that the US Housing Market is performing well and if the stock is not doing well, it means that the housing sector is slowing down.

Suppose, you trade GBPUSD pair! In July 2006, an uptrend in GBPUSD pair started that lasted for many months. The currency movement went to historical highs against the US Dollar (USD) and then retraced back at the end of 2007.

The cause was the fall in housing prices after a decade long boom. The direction of GBPUSD pair followed a significant slowdown in housing prices and mortgage approvals in Britain. Now you can use housing data in trading Australian Dollar (AUD) as well. This statement by Bloomberg can give you an indication that how important housing sector can be for AUD: “AUD rose, reversing a loss, after a government report showed home building approvals unexpectedly surged in November by the most in the nine months.

Japanese housing market data can be used to trade the Japanese Yen (JPY), one of the important global currency. Similarly, you can trade NZD (New Zealand Dollar), CAD (Canadian Dollar) and other currencies using the housing sector data in those economies as a leading indicator.