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EUR/USD: Trading the U.S. Durable Goods Orders Report

EUR/USD: Trading the U.S. Durable Goods Orders Report

2011-03-23 19:53:00
David Song, Currency Strategist
Share:

Trading the News: U.S. Durable Goods Orders

What’s Expected:

Time of release: 03/24/201112:30 GMT, 8:30 EST

Primary Pair Impact : EURUSD

Expected: 1.2%

Previous: 2.7%

DailyFX Forecast: 1.5% to 2.5%

Why Is This Event Important:

Orders for U.S. durable goods are expected to increase another 1.2% in February following the 2.7% expansion in the previous month, and the ongoing improvement in private sector consumption could spark a bullish reaction in the dollar as it remains one of the leading drivers of growth. In turn, the Fed may continue to raise its fundamental assessment for the world’s largest economy, and the central bank may talk down speculation for another round of quantitative easing as growth and inflation gather pace. As a result, the short-term reversal in the EUR/USD may gather pace going into the end of the week, and the exchange rate may fall back towards the 20-Day moving average at 1.3951 as it searches for support.

Recent Economic Developments

The Upside

Release

Expected

Actual

Advance Retail Sales (FEB)

1.0%

1.0%

Consumer Credit (JAN)

$3.500B

5.014B

Personal Income (JAN)

0.4%

1.0%

The Downside

Release

Expected

Actual

Industrial Production (FEB)

0.6%

-0.1%

U. of Michigan Confidence (MAR P)

76.3

68.2

GDP (4Q P)

3.3%

2.8%

As retail sales increases for the eighth consecutive month in February, with the expansion in consumer credit gathering pace, households and businesses may increase their willingness to spending on big-ticket items as the government continues to support the real economy. However, as household sentiment deteriorates, with firms scaling back on production, domestic demands may waver given the protracted recovery in the labor market, and a dismal durable goods report could dampen the outlook for future growth as private sector consumption accounts for more than two-thirds of the economy. In turn, the Fed may see scope to expand monetary policy further in the second-half of 2011, and speculation for another round of QE is likely to bear down on the exchange rate as the central bank maintains a cautious outlook for the region.

Potential Price Targets For The Release

EURUSD_Trading_the_U.S._Durable_Goods_Orders_Report_body_ScreenShot014.png, EUR/USD: Trading the U.S. Durable Goods Orders Report

How To Trade This Event Risk

As market participants expect demands for U.S. durable goods to increase for the second consecutive month in February, the data certainly reinforces a bullish outlook for the greenback, and the market reaction following the report could set the stage for a long U.S. dollar trade as the outlook for future growth improves. Therefore, if orders increase 1.2% or more from the previous month, we will need to see a red, five-minute candle subsequent to the release to generate a sell entry on two-lots of EUR/USD. Once these conditions are met, we will set the initial stop at the nearby swing high or a reasonable distance after taking market volatility into account, 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 breakeven once the first trade reaches its mark in order to preserve our profits.

On the other hand, households and businesses may curb their willingness to spending on large-ticket items as the economic outlook remains clouded with high uncertainty, and the central bank may look to support the real economy throughout 2011 as it aims to stem the downside risks for the region. As a result, if demands grow less than 1.0% in February or unexpectedly contract from the previous month, we will utilize the same setup for a long euro-dollar trade as the short position laid out above, just in the opposite direction.

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 2011

02/24/2011 13:30 GMT

2.8%

2.7%

+25

+27

January 2011 U.S. Durable Goods Orders

Demands for U.S. durable goods increased 2.7% in January following a revised 0.6% contraction in the previous month, while orders excluding aircrafts unexpectedly slumped 3.6% during the same period after expanding 2.7% in December. An in-depth look at the report showed demands for nondefense capital goods excluding aircrafts, which acts as a proxy for business investments, tumbled 6.9% from the month prior to mark the biggest decline since January 2009, while overall shipments increased 0.3% follow the 2.3% expansion in December. As private sector activity remains weak, the Federal Reserve is likely to support the real economy throughout the first-half of the year, and the central bank may keep the benchmark interest rate at the record-low throughout the majority of 2011 as it aims to encourage a sustainable recovery. Indeed, currency traders showed a mixed reaction to the report, with the EUR/USD maintaining the range ahead of the data, but the U.S. dollar certainly ended the day lower as the pair closed at 1.3798.

EURUSD_Trading_the_U.S._Durable_Goods_Orders_Report_body_ScreenShot013.png, EUR/USD: Trading the U.S. Durable Goods Orders Report

Questions? Comments? Join us in the DailyFX Forum

Join Currency Analyst David Song in the DailyFX Trading Room to cover the event LIVE!

View the Expo Presentation on ‘Trading the News’ For Additional Resources

To discuss this report contact David Song, Currency Analyst: dsong@dailyfx.com

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