Fundamental Outlook
Durable goods orders in the U.S. are forecasted to rise 0.6% in February, marking the third straight month that the reading has advanced, while economists expect new home sales to advance 1.9% to 315K, rising from a record low in January and adding speculation that manufacturing is leading the economic recovery in the region, while housing clings to stability. Meanwhile, a report by the Institute for Supply Management showed that manufacturing fell to 56.5 in February from 58.4 the previous month (a reading above 50 generally means that manufacturing is expanding). Moreover, the advanced GDP report for the fourth quarter expanded at the fastest pace since 2004, with the reading pushing 5.7% higher, while advanced retail sales unexpectedly rallied 0.3% in February from a downward revision of 0.1%, a signal that consumers will continue to contribute to economic growth despite harsh weather conditions.
Indeed, the labor market unexpectedly strengthened more than economist’s expectated in February despite severe snowstorms in the East Coast as payrolls dived 36K subsequent to falling 26K the month prior, marking the first back to back rally since 2006. Thus, following the FED’s decision to keep rates “exceptionally low” for an “extended period” paired with the recent strength in the labor market, if demands for durable goods expand more than 0.6% in February, this would validate our bearish EUR/USD technical outlook, with a break below the 61.8% Fibonacci retracement (1.3500). Nevertheless, the euro is at the crossroads as traders await a concrete plan of action regarding Greece’s woes as the country continually weighs on the currency amid its fiscal crisis and concerns on stability from the EMU.
Technical Outlook
EUR/USD
Charts prepared by Michael Wright
EUR/USD: Following up on my report from last week (Euro at Crossroads Ahead of FOMC Meeting), we were looking at pair to possibly complete a fourth wave and indeed, it has done so as the pair retreated from the upper trend channel. Still trading within its descending channel that has held since early December, focus now turns to the 76.4% Fibonacci retracement, with a soft target at pivot support of 1.3428, and a break below exposing 1.3364.
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Written by Michael Wright, Daily FX Research
Questions? Comments? Email me at mwright@fxcm.com
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