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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: 09/27/2012 12:30 GMT, 8:30 EDT

Primary Pair Impact: EURUSD

Expected: -5.0%

Previous: 4.2%

DailyFX Forecast: -5.0% to 0.5%

Why Is This Event Important:

Orders for U.S. Durable Goods are expected to contract 5.0% in August, and a dismal development may fuel speculation for additional monetary support as private sector consumption remains one of the leading drives of growth for the world’s largest economy. As the Federal Reserve continues to highlight the ongoing slack in the real economy, weakening demands for large-ticket items may encourage the central bank to maintain a dovish tone for monetary policy, and the FOMC may see scope to expand its balance sheet further as it aims to encourage a stronger recovery.

Recent Economic Developments

The Upside

Release

Expected

Actual

Consumer Confidence (SEP)

63.1

70.3

U. of Michigan Confidence (SEP P)

74.0

79.2

Advance Retail Sales (AUG)

0.8%

0.9%

The Downside

Release

Expected

Actual

Average Hourly Earnings (YoY) (AUG)

1.9%

1.7%

Change in Non-Farm Payrolls (AUG)

130K

96K

Personal Income (JUL)

0.3%

0.3%

The sharp rebound in consumer sentiment paired with the resilience in household spending certainly bodes well for U.S. durable goods, and a positive development may dampen expectations for further easing as the economy gets on a more sustainable path. However, the persistent weakness in wage growth along with the protracted recovery in the labor market may drag on private consumption, and Fed officials may increase their pledge to shore up the region should the data dampen the outlook for growth.

Potential Price Targets For The Release

EURUSD_Trading_the_U.S._Durable_Goods_Orders_Report_body_ScreenShot081.png, EURUSD: Trading the U.S. Durable Goods Orders Report

As the EURUSD carves out a lower top in September, the technical outlook reinforces a bearish forecast for the pair, and the euro-dollar may continue to give back the advance from the end of July (1.2041) should the report curb bets for more easing. However, as the EURUSD manages to hold above the 200-Day SMA (1.2824), a dismal development may spark a rebound in the exchange rate as it encourages expectations for additional quantitative easing.

How To Trade This Event Risk

Forecasts for a decline in durable goods certainly casts a bearish outlook for the greenback, but a positive development may pave the way for a long U.S. dollar trade as it raises the scope for a stronger recovery. Therefore, if the report tops market expectations, we will need a red, five-minute candle following 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 breakeven once the first trade hits its mark in an effort to lock-in our gains.

In contrast, demands for large-ticket items may taper off in August amid the persistent slack in the real economy, and a marked decline in durable goods may drag on the greenback as the data fuels bets for more QE. As a result, if orders fall 5.0% or greater, we will carry out the same strategy for a long euro-dollar trade as the short position mentioned 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)

AUG 2012

08/24/2012 12:30 GMT

2.5%

4.2%

-8

-32

August 2012 U.S. Durable Goods Orders

EURUSD_Trading_the_U.S._Durable_Goods_Orders_Report_body_ScreenShot080.png, EURUSD: Trading the U.S. Durable Goods Orders Report

Demands for U.S. durable goods increased another 4.2% in July after expanding 1.6% the month prior, while non-defense capital orders excluding aircrafts, which acts as a gauge for business investments, slipped 0.4% amid forecasts for a 0.5% rise. Although the initial reaction was fairly muted, we saw the U.S. dollar regain its footing during the North American trade, with the pair ended the day at 1.2510.

--- 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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