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

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

2013-05-24 06:00:00
David Song, Strategist
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Trading the News: U.S. Durable Goods Orders

What’s Expected:

Time of release: 05/24/2013 12:30 GMT, 8:30 EDT

Primary Pair Impact: EURUSD

Expected: 1.5%

Previous: -5.7%

DailyFX Forecast: 1.0% to 2.5%

Why Is This Event Important:

Orders for U.S. Durable Goods are expected to increase 1.5% in April and greater demands for large-ticket items should increase the appeal of the dollar as private sector consumption remains one of the leading drivers of growth. As a growing number of Fed officials turn increasingly upbeat toward the economy, it seems as though the FOMC will scale back on quantitative easing in the second-half of the year, and the committee may start to lay out a more detailed exit strategy in the coming months as the region gets on a more sustainable path.

Recent Economic Developments

The Upside

Release

Expected

Actual

U. of Michigan Confidence (MAY P)

77.9

83.7

Advance Retail Sales (APR)

-0.3%

0.1%

Change in Non-Farm Payrolls (APR)

140K

165K

The Downside

Release

Expected

Actual

Consumer Credit (MAR)

$15.600B

$7.966B

Personal Income (MAR)

0.4%

0.2%

Gross Domestic Product (Annualized) (QoQ) (1Q A)

3.0%

2.5%

The rebound in consumer sentiment paired with the resilience in household spending certainly bodes well for U.S. durable goods, and a positive development may further dampen expectations for more QE as the outlook for growth improves. However, subdued wage growth along with the slowdown in private sector credit may drag on demands for large-ticket items, and the FOMC may keep the door open to expand its asset purchase program beyond the $85/month target in an effort to encourage a stronger recovery.

Potential Price Targets For The Release

Forex_EURUSD-_Trading_the_U.S._Durable_Goods_Orders_Report_body_ScreenShot278.png, EUR/USD- Trading the U.S. Durable Goods Orders Report

The head-and-shoulders formation in the EURUSD should continue to take shape as it carves out a lower top in May, and the pair looks poised for a move back towards the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50 as the fundamental outlook for the U.S. economy improves. However, a dismal durable goods report may spark another test of the 38.2% retracement (1.3120), and we may see the bearish pattern fail to pan out should the developments coming out of the U.S. renew bets for additional monetary support.

How To Trade This Event Risk

Forecasts for a rebound in durable goods certainly casts a bullish outlook for the greenback, and a positive development may pave the way for a long U.S. dollar trade as it raises the scope for faster growth. Therefore, if orders increase 1.5% or greater in April, 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 U.S. durable goods may taper off amid the persistent slack in the real economy, and a dismal print may drag on the greenback as the data fuels bets for more QE. As a result, if the report falls short of market expectations, 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)

MAR 2013

04/24/2013 12:30 GMT

-3.0%

-5.7%

-2

+19

March 2013 U.S. Durable Goods Orders

Forex_EURUSD-_Trading_the_U.S._Durable_Goods_Orders_Report_body_ScreenShot277.png, EUR/USD- Trading the U.S. Durable Goods Orders Report

Demands for U.S. durable goods tumbled 5.7% in March after expanding a revised 6.4% the month prior, while orders for Non-Defense Capital Goods excluding Aircrafts, a proxy for business investments, increased 0.2% during the same period amid forecasts for a 0.3% rise. Despite the weaker-than-expected print, the EURUSD edged lower following the release, but we saw the U.S. dollar struggle to hold its ground during the North American trade as the pair ended the day at 1.3014.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com.

Follow me on Twitter at @DavidJSong

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