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EURUSD: Trading the U.S. Durable Goods Report

EURUSD: Trading the U.S. Durable Goods Report

David Song, Strategist

Trading the News: U.S. Durable Goods Orders

What’s Expected:

Time of release: 06/27/2012 12:30 GMT, 8:30 EDT

Primary Pair Impact: EURUSD

Expected: 0.4%

Previous: 0.2%

DailyFX Forecast: 0.2% to 0.5%

Why Is This Event Important:

Orders for U.S. durable goods are projected to increase another 0.4% in May and rising demands for large-ticket items may prop up the dollar as it raises the outlook for growth. As the recovery gradually gathers pace, we should see the Federal Reserve refrain from another round of quantitative easing, and the central bank may become increasingly upbeat towards the economy as it gets on a more sustainable path.

Recent Economic Developments

The Upside

Release

Expected

Actual

Dallas Fed. Manufacturing Activity (JUN)

-2.0

5.8

New Home Sales (MoM) (MAY)

1.0%

7.6%

Building Permits (MoM) (MAY)

1.0%

7.9%

The Downside

Release

Expected

Actual

Consumer Confidence (JUN)

63.0

62.0

Consumer Price Index ex Food & Energy (YoY) (MAY)

2.2%

2.3%

Personal Income (APR)

0.3%

0.2%

The pickup in business outputs paired with the rebound in building activity may spur greater demands for U.S. durable goods, and a positive development may increase the appeal of the USD as it curbs expectations for more monetary easing. However, subdued wage growth paired with the stickiness in underlying inflation may continue to drag on private sector consumption, and a dismal print may renew speculation for QE3 as the FOMC keeps the door open to expand its balance sheet further.

Potential Price Targets For The Release

EURUSD_Trading_the_U.S._Durable_Goods_Report_body_ScreenShot120.png, EURUSD: Trading the U.S. Durable Goods Report

As the EURUSD maintains the downward trend carried over from the previous year, we will maintain a bearish outlook for the pair, and the euro-dollar may continue to give back the rebound from 1.2287 as it appears to be carving a lower top in June. In turn, the technical outlook points to fresh yearly lows for the EURUSD, and the bearish trend should continue to take shape in 2012 as long as the Fed abstains from increasing its balance sheet further. For a complete EURUSD technical outlook and scalp levels, refer to today’s Winners/Losers report.

How To Trade This Event Risk

Forecasts for a second consecutive rise in U.S. durable goods certainly casts a bullish outlook for the greenback, and a positive development may pave the way for a long dollar trade as it dampens expectations for more QE. Therefore, if demands increase 0.4% or greater in May, 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 set the initial stop at the nearby swing high or a reasonable distance from the entry, and this risk will establish our first target. The second objective 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 order to preserve our profits.

In contrast, slowing wage growth paired with the ongoing weakness in the real economy may drag on private sector consumption, and weaker demands for large-ticket items may spark a bearish reaction in the greenback as it fuels expectations for more QE. As a result, if the print falls short of market forecast, we will implement the same strategy 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)

APR 2012

5/24/2012 12:30 GMT

0.2%

0.2%

+23

-34

April 2012 U.S. Durable Goods Orders

EURUSD_Trading_the_U.S._Durable_Goods_Report_body_ScreenShot118.png, EURUSD: Trading the U.S. Durable Goods Report

Demands for U.S. durable goods increased 0.2% in April after contracting 3.7% the month prior, while non-defense capital goods orders excluding aircrafts, which acts as a gauge for business investments, slipped another 1.9% during the same period. Indeed, the greenback struggled to hold its ground following the report, with the EURUSD climbing back above the 1.2600 figure, but we saw the dollar regain its footing during the North American trade as the pair ended the day at 1.2530.

--- Written by David Song, Currency Analyst

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

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

Questions? Comments? Join us in the DailyFX Forum

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

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