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EURUSD: Trading the U.S. Durable Goods Order Report

By , Currency Strategist  and , Currency Analyst
28 March 2012 07:00 GMT

Trading the News: U.S. Durable Goods Orders

What’s Expected:

Time of release: 03/28/2012 12:30 GMT, 8:30 EST

Primary Pair Impact: EURUSD

Expected: 3.0%

Previous: -4.0%

DailyFX Forecast: 2.5% to 4.0%

Why Is This Event Important:

Orders for U.S. durable goods are expected to increase 3.0% in February and the development may prop up the dollar as it dampens the scope for another large-scale asset purchase program. Although Fed Chairman Ben Bernanke struck a dovish tone for monetary policy, it seems as though the central bank will preserve a wait-and-see approach in 2012 as the FOMC takes note of the more robust recovery.

Recent Economic Developments

The Upside

Release

Expected

Actual

Advance Retail Sales (FEB)

1.1%

1.1%

Change in Non-Farm Payrolls (FEB)

210K

227K

Consumer Credit (JAN)

$10.450B

$17.776B

The Downside

Release

Expected

Actual

U. of Michigan Confidence (MAR P)

76.0

74.3

Average Weekly Earnings (YoY) (FEB)

2.0%

1.9%

Personal Income (JAN)

0.5%

0.3%

The expansion in household spending paired with the ongoing rise in consumer credit should spur increased demands for large-ticket items, and a large rebound could spark a short-term reversal in the EURUSD as the pair appears to carving a lower high ahead of April. However, as household confidence wanes, subdued wage growth may drag on consumption, and a dismal development could heighten speculation for more quantitative easing as the Federal Reserve aims to encourage a stronger recovery. In turn, we may see the EURUSD continue to retrace the decline from the previous month, and the pair may make another run at the 50.0% Fibonacci retracement from the 2009 high to the 2010 low around 1.3500 as market participants raise bets for another large-scale asset purchase program.

Potential Price Targets For The Release

EURUSD_Trading_the_U.S._Durable_Goods_Order_Report_body_03.png, EURUSD: Trading the U.S. Durable Goods Order Report

A look at the encompassing structure sees the euro breaching key Fibonacci resistance at the 23.6% Fibonacci retracement taken from the January 13th advance at 1.3280 before encountering soft resistance at 1.3380. Note that daily RSI is now testing trendline support with a breach here likely to fuel the euro with enough momentum to see a test of long standing trendline resistance dating back to August 29th, currently around 1.3425. A close back below 1.3280 puts downside targets back in play with such a scenario likely to see a test of the 38.2% retracement at 1.3155.

EURUSD_Trading_the_U.S._Durable_Goods_Order_Report_body_03_1.png, EURUSD: Trading the U.S. Durable Goods Order Report

Our 30min scalp chart highlights intra-day support at the 61.8% Fibonacci extension taken from the February 16th and March 14th troughs at 1.3317 with subsequent support targets seen at 1.3283, the 50% extension at 1.3257 and 1.3220. The single currency has continued to trade within the confines of an ascending channel formation dating back to the March 14th low with the EURUSD rebounding off channel resistance in early US trade. Interim topside resistance now stands at 1.3365 backed by channel resistance and the 78.6% extension at the 1.34-figure. A breach above this level risks substantial losses for the dollar with subsequent ceilings seen at 1.3435, 1.3485, and the 100% extension at 1.3512. Should the print prompt a bullish dollar response, look to target downside levels with a break below channel support offering further conviction on our bias.

How To Trade This Event Risk

As market participants anticipate a rebound in U.S. durable goods, expectations for greater demand casts a bullish outlook for the greenback, and the reaction could pave the way for a long dollar trade as it dampens speculation for QE3. Therefore, if orders increase 3.0% or more from the previous month, we will need a red, five-minute candle following the release to generate a sell entry on two-lots of EURUSD. Once these conditions are met, we will place the initial stop at the nearby swing high or a reasonable distance from the entry, and this risk will establish our first objective. The second target will be based on discretion, and we will move the stop on the second lot to cost once the first trade hits its mark in an effort to lock-in our profits.

On the other hand, subdued wages paired with the drop in consumer sentiment may drag on consumption, and a dismal report could spark a selloff in the USD as market participants raise bets for additional monetary support. As a result, if durable goods fall short of expectations, we will implement the same setup for a long euro-dollar trade as the short position laid out above, just in reverse.

Impact that the U.S. Durable Goods Orders report has had on USD during the last month

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JAN 2012

2/28/2012 13:30 GMT

-1.0%

-4.0%

-15

+12

January 2012 U.S. Durable Goods Orders

EURUSD_Trading_the_U.S._Durable_Goods_Order_Report_body_ScreenShot071.png, EURUSD: Trading the U.S. Durable Goods Order Report

Demands for U.S. durable goods tumbled 4.0% in January to mark the biggest decline in three-years, while orders for non-defense capital goods excluding transports, which acts as a gauge for business investments, weakened 4.5% after expanding a revised 3.4% the month prior. The EURUSD drifted lower as the dismal report dragged on risk-taking behavior, but the greenback struggled to hold its ground during the North American trade as the pair ended the day at 1.3456.

--- Written by David Song, Currency Analyst and Michael Boutros, Currency Strategist

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

To contact Michael email mboutros@dailyfx.comor follow him on Twitter @MBForex.

To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com.

To be added to Michael’s email distribution list, send an email with subject line “Distribution List” to mboutros@dailyfx.com

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28 March 2012 07:00 GMT