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Bullish USD Outlook to Gather Pace as Durable Goods Rebound

Bullish USD Outlook to Gather Pace as Durable Goods Rebound

2013-12-24 08:00:00
David Song, Strategist
Share:

- U.S. Durable Goods Orders to Rise for the Seventh Time in 2013

- Non-Defense Capital Goods Orders Excluding Aircrafts to Follow Suit

Trading the News: U.S. Durable Goods Orders

Demands for U.S. Durable Goods are projected to increase 2.0% in November and a strong rebound may spark a bullish reaction in the greenback as the Fed moves away from its easing cycle.

What’s Expected:

Time of release: 12/24/2013 13:30 GMT, 8:30 EST

Primary Pair Impact: EURUSD

Expected: 2.0%

Previous: -2.0%

DailyFX Forecast: 1.0% to 2.0%

Why Is This Event Important:

A marked pickup in private sector consumption may prompt the Federal Open Market Committee (FOMC) to further reduce its asset-purchase program at the January 29 meeting as the economic recovery gradually gathers pace.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Gross Domestic Product (Annualized) (QoQ) (3Q F)

3.6%

4.1%

Advance Retail Sales (MoM) (NOV)

0.6%

0.7%

Change in Non-Farm Payrolls (NOV)

185K

203K

The resilience in household spending along with the faster rate of job growth may generate increased demands for U.S. Durable Goods, and a positive development may heighten the bullish sentiment surrounding the dollar as it raises the Fed’s scope to normalize monetary policy ahead of schedule.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Personal Income (OCT)

0.3%

-0.1%

Average Hourly Earnings (YoY) (NOV)

2.0%

2.0%

Consumer Confidence (NOV)

72.6

70.4

However, subdued wage growth paired with the downturn in consumer confidence may limit demands for large-ticket items, and a dismal print may generate a bearish reaction for the greenback as market participants weigh the outlook for monetary policy.

Potential Price Targets For The Release

EURUSD Daily

Forex_Bullish_USD_Outlook_to_Gather_Pace_as_Durable_Goods_Rebound_body_Picture_2.png, Bullish USD Outlook to Gather Pace as Durable Goods Rebound

Chart - Created Using FXCM Marketscope 2.0

  • Appears to Have Carved a Higher Low Ahead of 50-Day SMA (1.3612)
  • Interim Resistance: 1.3800 (100.0 expansion) to 1.3830 (61.8 retracement)
  • Interim Support: 1.3530 (61.8 expansion) to 1.3570 (23.6 retracement)

How To Trade This Event Risk(Video)

Bullish USD Trade: Orders Rebound 2.0% or Greater

  • Need red, five-minute candle following the report to consider a short EURUSD trade
  • If the market reaction favors a bullish dollar trade, establish short EURUSD with two position
  • Set stop at the near-by swing high/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

Bearish USD Trade: Demands Contract for Second Month

  • Need green, five-minute candle following the release to look at a long EURUSD entry
  • Implement same setup as the bullish 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)

OCT 2013

11/27/2013 13:30 GMT

-2.0%

-2.0%

-8

-19

October 2013 U.S. Durable Goods Orders

Forex_Bullish_USD_Outlook_to_Gather_Pace_as_Durable_Goods_Rebound_body_ScreenShot129.png, Bullish USD Outlook to Gather Pace as Durable Goods Rebound

Purchase of large-ticket items slipped 2.0% in October following a 4.2% expansion during the previous month, while Non-defense Capital Goods Orders excluding Aircrafts, a proxy for business investments, weakened 1.2% amid forecasts for a 0.8% rise. The initial bearish dollar reaction was short-lived as the EURUSD failed to hold above the 1.3600 handle, and the pair continued to consolidate throughout the day as it closed at 1.3578.

--- 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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