The Dollar Is Poised To Move, But Which Way Is In Question

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The Dollar Is Poised To Move, But Which Way Is In Question

The US Dollar Index has been winding up within a trading range and looks ready to make a move. The problem is that it is wound up near the middle of said range with little indication of which way it will go. On the one hand the data has been weakening, inflation is receding, and outlook is dimming which are all bearish for the dollar. On the other hand the US economy is strongest among the developed nations and the FOMC is ready to hike rates should inflation rear its head again.

The EUR/USD Is Gathering Strength

The EURO seems to be gathering strength for a move higher versus the dollar. The single currency has recently bounced off support at the 1.290 level and swinging higher on bullish momentum. The move confirms a bottom at this level and is supported by the indicators. The MACD and stochastic are both moving up from bullish crossovers and firing strong buy signals. The only thing holding the pair back is the moving average which will probably be broken very soon. A move above the EMA would be bullish and likely take the pair up to 1.1400 and 1.1500 at least.

The Dollar, Getting Pounded By Sterling?

The GBP/USD has had a bullish bias for some time and looks like that is still in place. The pair is in an updraft that may become trend and heading towards resistance. Resistance is 1.3100 and 1.3200, both of which are likely to be reached in the near-term. The indicators are both bullish and showing crossovers in support of upward movement. The only caveat is that 1.3100 is a solid resistance target that may hold prices in check. That being said, a move above 1.3100 will hit 1.3200 at least, 1.3400 is not out of the question.

Yen Surge At Hand

The USD/JPY has been trending upward since the beginning of the year but that trend may be over. The pair is now at resistance near 110.25 where it looks like a major decline is brewing. The indicators are highly divergent from recent highs and suggest an underlying weakness that would confirm downtrend over the longer-term. A fall from this level would confirm this outlook and probably lead to a significant decline in the USD/JPY over the next two to four months. My target, provided decline is confirmed, would be 108.00 and 106.00 in the near to short-term.

Technology is poised to upend America’s property market – The Economist

F ROM FAR enough away most houses look the same. At cruising altitude over Dallas, Los Angeles and even much of New York, most dwellings are nondescript: beige- or grey-roofed, laid out in neat patterns. In sunnier climes the monotony is punctuated by the bright turquoise oblongs of swimming pools. When it comes to valuing a home, though, the details matter. The site, square footage, number of rooms, the finishing and a thousand other factors determine whether a home is worth $200,000 or $2,000,000.

For this reason real estate has long been a fragmented, local market. There are 2m estate agents in America, according to the National Association of Realtors (NAR), just over 1% of America’s workforce. An agent does a number of tasks—appraising houses, marketing properties, organising tours—for a handful of transactions each year. An agent might dominate the market in a single neighbourhood—a few streets in Beverly Hills, say. But zoom out to Los Angeles and its sprawling suburbs and his market share quickly drops to nearly zero.

Real estate is the biggest asset market in the world. The value of residential property in America—at around $34trn—rivals the market capitalisation of all listed American companies. Throw in commercial and retail property, together worth around $16trn, and its value easily eclipses that of public firms. For decades the market has been characterised by low volumes and extortionate transaction costs (see charte). Just 7% of American homes change hands each year. Homeowners traded property worth $1.5trn in America in 2020, forking over some $75bn in commission to agents, or around 0.4% of GDP. The fees for trading many other financial assets pale in comparison. Around $40trn-worth of stocks are traded annually in America. The fees paid by institutional investors to brokers have halved from their peak, to less than $10bn.

On top of the brokers’ fees paid to sell a home in America, which amount to 5-6% of the price, other levies—government taxes, mortgage fees—mean that the total cost of moving exceeds a tenth of the price. The expense could help explain why owners are staying in their homes for longer. In the 1950s, 20% of households in a county moved each year. Today 9% do.

This antiquated model is on the verge of being disrupted. In America rules on commissions and data-sharing have so far kept fees higher than in other rich countries. But now regulators and courts are considering again whether practices in the real-estate industry are anticompetitive.

Technology also promises to make moving home quicker, easier and cheaper. As recently as 2020 venture capitalists invested just tens of millions of dollars in property technology, or “prop tech”, each year. By 2020 that had climbed to $6bn. The four biggest prop-tech firms, Compass, Opendoor, Redfin and Zillow, have a combined valuation of $23bn. These offer a range of services, from online listings to tools that make estate agents more productive. Some act as “intermediate buyers”, making cash offers to sellers to speed up the process of homebuying.

Technology has already transformed other big asset markets. Fifty years ago trading company shares was opaque, illiquid and expensive. Ray Dalio, who worked on the trading floor of the New York Stock Exchange in the early 1970s before founding Bridgewater Associates, now the world’s largest hedge fund, bemoans practices that were once considered normal. “Dealers had to entertain fund managers, and no one would know what the prices were.” But technology has taken over more and more aspects of trading. Today markets are transparent and liquid. Transaction costs are close to zero.

The market for houses is structurally different from that for stocks. Every share of Microsoft is identical, but no two homes are exactly alike. Emotion plays a bigger role in the decision to move house. Most buyers and sellers are links in a chain. Two-thirds of Americans selling a home are also looking to buy another. A delay at one point in a chain holds up transactions all along it.

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But these difficulties cannot justify the fees Americans pay. Fees across the much of the developed world have fallen, thanks to the entry of online platforms that allow would-be buyers to search for properties themselves. American brokers argue that they provide a more holistic service than estate agents elsewhere. But a bigger factor may be the network effects associated with the multiple-listing service (MLS) through which nearly every broker lists and searches for homes, and the NAR, the industry association that regulates it.

All agents that are registered with the NAR must post their listings to the MLS in return for access to other listings. The convention in the industry is for sellers to pay the buyer’s broker, with the listing specifying the fee. Maisy Wong of the Wharton School of the University of Pennsylvania finds that brokers steer buyers away from properties that offer less than 3% commission, keeping fees high.

This used to prevent online platforms from allowing buyers to search for properties, because agents could opt out of having their listings posted on other brokers’ websites. But in 2008 the Department of Justice (DOJ) ruled that MLS listings data could not be restricted this way, and should be shared with online platforms. Zillow and Redfin now publish MLS listings. But commission norms still make it hard for “discount” brokerages to get a footing. Purplebricks, a British company that expanded into America in 2020, offered to sell homes for a fee of around $4,000 regardless of price. After two years of making losses, it withdrew. REX, a brokerage founded in 2020, will return half of the fees it collects to the buyer. But such rebates are illegal in many states.

Disgruntled home-sellers have mounted class-action lawsuits against their estate agents for anticompetitive behaviour. They want to cut the ties between buying and selling fees, arguing that they are forced into paying inflated fees for buyers’ brokers. The DOJ is also investigating anticompetitive practices in the industry. It is looking into whether brokers can search listings by commission rates.

The new middlemen

A better comparison for real estate might be the market for bonds rather than shares. Bonds vary by tenor (the length of time till they fall due) and coupon (interest) rate. That makes matching buyers with sellers harder. To create liquidity, institutions such as investment banks act as intermediaries, holding an inventory of corporate bonds and guaranteeing to buy from or sell to clients at any time. Fees are a little meatier than those paid to trade stocks—but still much lower than real-estate commissions.

Similarly, intermediaries known as instant buyers, or “i-buyers”, are muscling into the property market. Opendoor, founded in San Francisco in 2020, now operates in more than 20 cities. Zillow and Redfin began i-buying in 2020.

These firms use vast quantities of data and whizzy machine-learning algorithms to appraise homes and make an initial offer, often within hours of a seller asking for one. A couple in Covina, in greater Los Angeles, requested an offer from Zillow on Christmas Eve 2020, had their home inspected on December 26th and accepted the bid the next day. They chose to set a closing date in March 2020, but could have opted for December 28th. Once they move Zillow will sell the house on—often within 30 to 90 days. The fee is typically around 6-7%, almost the same as a seller would pay an agent—but for a much quicker and easier process. Knock, another prop-tech firm, follows a different model, buying a new home for a homeowner and selling the old house once they have moved.

At the national level, i-buyers are still small. They bought 60,000 homes worth $8.9bn in 2020, or around 0.5% of transactions. But in the 18 markets in which they buy, their share is 3%. It is even higher in places like Phoenix, Arizona and Raleigh, North Carolina, where i-buyers have operated for several years.

Some markets are better suited to i-buying than others. The model works best when homes are new and homogenous. Parts of the suburbs of Dallas are packed with cookie-cutter houses. These are easy to price, because it is likely that a similar house has sold recently. Two identical homes built next door to each other in 2020 can only be a little different. By contrast, adjacent Brooklyn brownstones built in the 1920s could be entirely different beasts. Some markets might be too idiosyncratic for i-buying, says Sean Black of Knock. Prices jump in Palo Alto, a town south of San Francisco that is popular with tech workers, when a large company goes public. Loft apartments in Tribeca, a neighbourhood in Manhattan near the downtown financial district, soar in years when banker bonuses are fat.

Alex Rampell of Andreessen Horowitz, a venture-capital firm that has invested in Opendoor, says i-buyers create a pool of liquidity, allowing investors keen to buy rental properties to do so at scale. “Institutional investors buy to achieve a certain rental yield, so they are less sensitive to price uncertainty.”

The success of i-buyers also depends on whether their algorithms get the price right. The most important factor is location, says Bridget Frey of Redfin. It interacts with other factors, too. “You need location to tell the algorithm what weight to put on the thousands of other variables you might look at.” Swimming pools add value in San Diego but tend to decrease it in New Jersey. In Atlanta proximity to a golf course is highly prized. Before Zillow launched there a worker traced every golf course on Google Maps, so that it could be added as a variable. For years Rich Barton, Zillow’s founder, found it odd that the algorithm assigned a negative value to extra bedrooms. “It seemed backwards. But once you’ve factored in square footage, extra rooms actually deduct from the value of a house.”

The process is not entirely devoid of human input. At Zillow’s offices in Seattle a group of youthful workers spend their days on Google Maps zooming in on pictures of houses that sellers have requested prices for, verifying that nothing looks too out of the ordinary. Ms Frey would like to get to a point where the algorithm beats the human. But at present Redfin also uses agents to conduct home inspections, and defers to them if their assessment differs from that of the algorithm.

The bosses of the teams building the algorithms all talk about their “buy-boxes”. Rather than buying the most expensive or the cheapest homes in any neighbourhood, they prefer the 60% or so in the middle. They find it easier to provide an offer for average homes with confidence; over more unusual homes there tends to be greater uncertainty. And the more uncertainty, the lower the offer they might have to make—if they make one at all. “We sometimes can’t quite figure out why that particular home is so much cheaper or more expensive than the rest,” says Stan Humphries of Zillow.

That said, where i-buyers do operate, they seem to get close to offering fair value. Research by Zillow finds that, when sellers decline the firm’s initial offer, their eventual sale price is only 0.2% different. An independent study by Mike DelPrete of the University of Colorado found that, on average, the offers made by Zillow and Opendoor were 98.6% of the price that standard industry models suggest, implying a 1.4% discount compared with the market.

Getting value right is critical to how the model works, says Glenn Kelman, the boss of Redfin. “If we start buying homes cheap, or trying to fix them up too much, our business will start to be valued like a real-estate investment firm. That is the opposite of what we want.” Tech firms tend to trade at higher valuations than property investment companies. I-buyers say they are in the business of providing convenience and liquidity, not flipping homes for profit.

A big question, though, is whether i-buying can be profitable. None of them yet make any money. Zillow’s home-buying business spends $1.40 for each $1 of revenue it receives. The firm makes most of its revenue selling leads on buyers to agents it is partnered with.

Free agents

Other innovations are nibbling away at the many other tasks that estate agents do. Redfin and Opendoor use remote electronic locks, which can let buyers into a home by themselves. Your correspondent let herself into a lovely two-bedroom flat in Santa Monica using Redfin’s app. Had she wanted to buy it, she could have done so without consulting an agent, by filling out an offer form on the app.

But not all of the biggest prop-tech companies in America are betting on estate agents becoming redundant. Redfin’s focus is on lowering agents’ costs. Sellers who list their home with Redfin pay commission as low as 1%, instead of the usual 3% (though sellers must still pay traditional commission rates to the buyers’ broker).

Compass, which was founded in 2020 and is now worth more than $6bn, is the most focused on helping agents. Its tools take the drudgery out of their work, in order to make them more productive. Its platform for agents analyses the best time to list properties and automatically sends them listings their buyers might like. Robert Reffkin, its founder, claims that agents who use Compass make more deals. “If Compass fails it is because my faith in the role of the agent is misplaced.”

Lower fees, therefore, need not mean a big hit to agents’ pockets. They might boost productivity. They could encourage people to move house more often, offsetting the fall in fee rates. Clients, meanwhile, would undoubtedly benefit. People rank buying a home second only to divorce as the most stressful time of their lives. If it becomes a little less so, and cheaper into the bargain, that would be a welcome change. ■

This article appeared in the Finance and economics section of the print edition under the headline “Technology is poised to upend America’s property market”

The Dollar Is Poised To Move, But Which Way Is In Question

— Published: Thursday, 13 July 2020 | Print | Disqus

By Mike Golembesky

In April I wrote an article on SeekingAlpha discussing the potential inflection point that the GBP/USD was closing in on ahead of the UK elections, which were scheduled to occur on June 8th. At the time the GBP/USD was trading at the 1.2860 level, and I was looking for the Pound to move higher into the longer-term resistance zone that I had been watching on the pair since the 2020 low was struck.

In late May the Pound poked its head just into this resistance zone prior to moving lower into the end of May. The Pound then retraced back higher as the June 8th election date approached topping in the overnight session on June 7th, then proceeded to move sharply lower bottoming on June 12th. This was followed by another corrective retrace to the upside followed by one more final low on June 21st.

Since this low on June 21st the Pound has risen quite sharply against the US Dollar and has once again re-tested the May highs and the lower end of the larger degree resistance zone, which currently comes in at 1.3012-1.3303. I do still view this zone as a significant inflection point, and as long as we do not see a sustained break of that resistance zone the Pound is still poised to see lower levels in the near term.

As I mentioned in the previous article, when there are sharp moves in financial instruments, pundits and the public at large will typically look toward some exogenous event to explain these moves. Most of the time the pundits are able to find some kind of news event to explain a move, but there are times when they simply are not. This was the case with the October drop in the pound as it hit a spike low that saw the pair down over 1400 pips in the overnight session prior to finally settling down just over 500 pips lower from the October 5th closing price.

Now, while at times an exogenous event can act as a timing catalyst for large market moves, this is more of the exception than the rule. Often times when an exogenous event is assigned to a move by a pundit, and later the public, that move was already well underway prior to the event even occurring.

I mention this because GBP/USD now has a pattern that has the potential to see a sharp reversal to the downside. So with the “Brexit” negotiations having already begun, and no other major event on the schedule, we simply will have to wait and see if the pundits will be able to find an event to assign to a move should the Pound follow-through on the bearish pattern that we are seeing.

Previously I had labeled the consolidation pattern that occurred from October 2020 into the May highs as a rather complex triangle pattern. At the time this pattern best fit with what I was viewing as a thrust up out of the triangle and into the resistance zone as previously noted. While we did see a fairly sharp reversal to the downside after touching the lower end of that resistance zone under this pattern.

That reaction to the downside failed to see continued follow through. This failure to follow-through has since required a revision of how I am counting the sub-divisions within this larger degree fourth wave. With that being said and as we are still trading well under the larger degree resistance zone, this modification does not change my bigger picture view on GBP/USD, and the 1.3012-1.3303 resistance zone is still acting as a significant inflection zone.

Additionally, the move back up off of the June 20th low is now providing us with not only a much more simple way to count the sub-divisions within this fourth wave but a much better short side setup than we had the last time that the Pound had tested the lower end of the long-term resistance zone.

This bearish setup triggers upon any move back over the May 18th high, which comes in at 1.3047 prior to breaking down below the June 20th low at 1.2588 and ideally I would prefer this high to be made while holding over the 1.2692 level. If all of these things can fall into place, then we will have what can be counted as a completed Ending Diagonal pattern. Follow through on this pattern should then result in a sharp reversal back down towards at least the January lows at 1.1985 and eventually back under the 2020 lows and closer to Par against the US Dollar on a longer term timeframe.

So while there is no question that the action has been somewhat sloppy on the Pound vs. the US Dollar as of late, my larger degree perspective on this Pound remains unchanged. I will continue to look towards lower levels over the next several years as long as the GBP/USD does not see a sustained break of the longer term resistance zone.

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