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U.S. Durable Goods to Contract- Dollar Correction on Tap?

U.S. Durable Goods to Contract- Dollar Correction on Tap?

David Song, Gregory Marks,

- U.S. Durable Goods Orders to Decline for First Time Since July 2013

- Demands for Durable Goods Increased Six Times in 2013

Trading the News: U.S. Durable Goods Orders

Demands for U.S. Durable Goods are expected to contract 2.0% in October and a marked 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 December 17-18 meeting.

What’s Expected:

Time of release: 11/27/2013 13:30 GMT, 8:30 EST

Primary Pair Impact: EURUSD

Expected: -2.0%

Previous: 3.7%

DailyFX Forecast: -3.0% to 2.0%

Why Is This Event Important:

With the ongoing discussion at the Fed to scale back on quantitative easing, data pointing to a slower recovery may prompt the central bank to undermine the taper-timeline laid out by Chairman Ben Bernanke, 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. economy dampen the outlook for growth and inflation.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Consumer Confidence (NOV)

72.6

70.4

U. of Michigan Confidence (NOV P)

74.5

72.0

Domestic Vehicle Sales (OCT)

11.90M

11.73M

The ongoing weakness in household sentiment may ultimately produce a larger-than-expected decline in U.S. Durable Goods, and a dismal print may spur a selloff in the reserve currency as it raises the Fed’s scope to retain its current policy for an extended period of time.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Advance Retail Sales (MoM) (OCT)

0.1%

0.4%

Wholesale Trade Sales (MoM) (SEP)

0.3%

0.6%

Personal Income (SEP)

0.3%

0.5%

However, the pickup in wage growth along with the resilience in private sector consumption may pave the way for a positive outcome, and third consecutive rise in Durable Goods may strengthen the argument to taper the asset-purchase program as the U.S. economy gets on a more sustainable path.

Potential Price Targets For The Release

Join DailyFX on Demand to Cover the U.S. Durable GoodsReport LIVE

Forex_U.S._Durable_Goods_to_Contract-_Dollar_Correction_on_Tap_body_Picture_2.png, U.S. Durable Goods to Contract- Dollar Correction on Tap?

Chart - Created Using FXCM Marketscope 2.0

  • Retains November Range; Carving Head-and-Shoulders Top?
  • Relative Strength Index Retains Bullish Momentum
  • Interim Resistance: 1.3530 (61.8% expansion) to 1.3580 (23.6% retracement)
  • Interim Support: 1.3290 (50.0% retracement) to 1.3300 Pivot

How To Trade This Event Risk(Video)

Bearish USD Trade: Orders for Durable Goods Contract 2.0% 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 Increase for the Third Straight Month

  • 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

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)

SEP 2013

10/25/2013 12:30 GMT

2.5%

3.7%

+14

+21

September 2013 U.S. Durable Goods Orders

Forex_U.S._Durable_Goods_to_Contract-_Dollar_Correction_on_Tap_body_Picture_1.png, U.S. Durable Goods to Contract- Dollar Correction on Tap?

Although U.S. Durable Goods orders beat estimates of 2.3% coming in at 3.7%, Ex Transport and Cap Orders Nondef Ex Air missed estimates by over 2%. In the ‘bad news is good news’ psyche, EUR/USD saw some chop before heading higher as the trading week came to a close. As for some fundamentals behind this Wednesday’s print, it is important to note that Caterpillar sales for October fell 12% vs. a 9% fall in September while massive Boeing orders from the Dubai Airshow will not be accounted for until the November print. Although the reading is estimated to come in at -2.0%, we have seen October data come in better than economists have expected as the US government shutdown impact has been relatively muted in data.

--- 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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