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

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

David Song, Strategist

Trading the News: U.S. Durable Goods Orders

What’s Expected:

Time of release: 08/24/2012 12:30 GMT, 8:30 EDT

Primary Pair Impact: EURUSD

Expected: 2.5%

Previous: 1.6%

DailyFX Forecast: 2.0% to 3.0%

Why Is This Event Important:

Orders for U.S. durable goods are projected to increase another 2.5% in July, and the pickup in private sector consumption may prop up the U.S. dollar as it raises the outlook for growth. Although the FOMC Minutes instilled a weakened outlook for the world’s largest economy, greater demands for large-ticket items may encourage the Fed to maintain its current policy throughout the remainder of the year as the recovery gets on a more sustainable path. In turn, we may see the Fed soften its dovish tone at the Jackson Hole Economic Symposium scheduled for the end of the month, and the central bank sound a little more upbeat this time around as the region faces a limited risk for a double-dip recession.

Recent Economic Developments

The Upside

Release

Expected

Actual

U. of Michigan Confidence (AUG P)

72.2

73.6

Advance Retail Sales (JUL)

0.3%

0.8%

Change in Non-Farm Payrolls (JUL)

100K

163K

The Downside

Release

Expected

Actual

NFIB Small Business Optimism (JUL)

91.6

91.2

Consumer Credit (JUN)

$10.250B

$6.459B

Average Hourly Earnings (YoY) (JUL)

1.7%

1.7%

The rebound in household sentiment paired with the pickup in job growth certainly bodes well for private sector consumption, and a positive development may increase the appeal of the USD as it limits the Fed’s scope to expand its balance sheet further. However, subdued wage growth along with the slowdown in private credit may sap demands for large-ticket items, and a dismal print may spur another selloff in the greenback as market participants increase bets for QE3.

Potential Price Targets For The Release

EURUSD_Trading_the_U.S._Durable_Goods_Orders_Report_body_ScreenShot122.png, EURUSD: Trading the U.S. Durable Goods Orders Report

Although we’ve seen an impressive rally in the EURUSD, we’re keeping a close eye on the 100-Day SMA (1.2615) as it corresponds with the downward trendline dating back to 2011. As the relative strength index on the EURUSD approaches overbought territory, the lack of momentum to push above the moving average may produce a lower top in the exchange rate, and we may see the bearish trend continue to take shape should the fresh batch of data dampen expectations for QE3. 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 third consecutive rise in U.S. durable goods certainly instills a bullish outlook for the greenback, and the market reaction may pave the way for a long U.S. dollar trade as currency traders curb bets for more quantitative easing. Therefore, if demands increase 2.5% or more in July, we will need to see a red, five-minute candle subsequent to the release to establish 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 generate 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 an effort 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 carry out the same setup for a long euro-dollar trade as the short position mentioned 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)

JUN 2012

7/26/2012 12:30 GMT

0.3%

1.6%

+30

+2

June 2012 U.S. Durable Goods Orders

EURUSD_Trading_the_U.S._Durable_Goods_Orders_Report_body_ScreenShot117.png, EURUSD: Trading the U.S. Durable Goods Orders Report

Demands for U.S. durable goods increased another 1.6% after expanding 1.5% during the previous month, while non-defense capital orders excluding aircrafts, which acts as a proxy for business investments, slipped 1.4% amid forecasts for a 0.1% print. Despite the uptick in the headline reading, the EURUSD pushed back above the 1.2300 figure amid the mixed batch of data, but we saw the pair consolidate during the North American trade as the pair ended the day at 1.2280.

--- 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

Meet the DailyFX team in Las Vegas at the annual FXCM Traders Expo, November 2-4, 2012 at the Rio All Suite Hotel & Casino. For additional information regarding the schedule, workshops and accommodations, visit the FXCM Trading Expo website.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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