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USD Rebound at Risk as Durable Goods to Fall for Second Month

USD Rebound at Risk as Durable Goods to Fall for Second Month

David Song, Strategist

- U.S. Durable Goods Orders to Contract for Second Month

- July Print (-7.4%) Marked the Largest Decline for 2013

Trading the News: U.S. Durable Goods Orders

Demands for U.S. Durable Goods are expected to contract another 0.2% in August and the slowdown in private sector consumption may drag on the dollar as it limits the Fed’s scope to taper the asset-purchase program at the October 29-30 meeting.

What’s Expected:

Time of release: 09/25/201312:30 GMT, 8:30 EDT

Primary Pair Impact:EURUSD

Expected: -0.2%

Previous: -7.3%

DailyFX Forecast: -1.0% to 1.0%

Why Is This Event Important:

With the ongoing discussion at the Fed to scale back on quantitative easing, data highlighting a slower recovery may prompt the central bank to further delay the exit strategy, and the committee may present a greater argument to carry its highly accommodative policy stance into 2014 should the fundamental developments coming out of the U.S. dampen the outlook for growth and inflation.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Consumer Confidence (SEP)

79.9

79.7

U. of Michigan Confidence (SEP P)

82.0

76.8

Consumer Credit (JUL)

$12.700B

$10.437B

The recent downturn in household sentiment paired with the slowdown in private sector credit may drag on consumption, and a dismal print may trigger a bearish reaction in the USD as it raises the Fed’s scope to retain its current policy stance.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Average Hourly Earnings (YoY) (AUG)

2.1%

2.2%

Domestic Vehicle Sales (AUG)

12.30M

12.44M

Gross Domestic Product (QoQ) (Annualized) (2Q P)

2.2%

2.5%

However, the pickup in wage growth along with the more broad-based recovery may heighten demands for large-ticket items, and a positive development may generate a near-term rally in the dollar as it raises the prospects for a strong recovery.

How To Trade This Event Risk(Video)

Join Analyst on Demand For Full Coverage of the U.S. Durable Goods Report

Bearish USD Trade: Orders for Durable Goods Contract 0.2% or Greater

  • Need green, five-minute candle following the report to consider a long EURUSD trade
  • If the market reaction favors a bearish dollar trade, establish long EURUSD with two position
  • Set stop at the near-by swing low/reasonable distance from entry with at least 1:1 risk-to-reward
  • Move stop to breakeven on remaining position once initial target is met; set reasonable limit

Bullish USD Trade: Demands for Large-Ticket Items Rebound

  • Need red, five-minute candle following the release to look at a short EURUSD entry
  • Implement same setup as the bearish USD trade, just in opposite direction

Potential Price Targets For The Release

Forex_USD_Rebound_at_Risk_as_Durable_Goods_to_Fall_for_Second_Month_body_Picture_2.png, USD Rebound at Risk as Durable Goods to Fall for Second Month

Chart - Created Using FXCM Marketscope 2.0

  • Carves Top After Marking Four Failed Attempts to Close Above the 1.3530-40 (61.8% Fib expansion)
  • Relative Strength Index Turns Around; Fails to Preserve Bullish Momentum
  • Interim Resistance: 1.3530-40 (61.8% Fibonacci expansion)
  • Interim Support: 1.3360 (38.2% Fibonacci expansion) to 1.3380 Pivot

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)

JUL 2013

08/26/2013 12:30 GMT

-4.0%

-7.3%

+12

+1

July 2013 U.S. Durable Goods Orders

Forex_USD_Rebound_at_Risk_as_Durable_Goods_to_Fall_for_Second_Month_body_ScreenShot136.png, USD Rebound at Risk as Durable Goods to Fall for Second Month

Orders for U.S. durable goods tumbled 7.3% in July to mark the biggest decline since August 2012, while non-defense capital goods orders excluding aircrafts, a proxy for business investments, slipped 3.3% during the same period amid forecasts for a 0.5% rise. The U.S. dollar pushed lower following the dismal print, with the EURUSD climbing above 1.3380 region, and the greenback struggled to hold its ground throughout the day as the pair closed at 1.3390.

--- 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, please follow this link

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