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Euro at Risks for Further Losses as U.S. Durable Goods Rebound

Euro at Risks for Further Losses as U.S. Durable Goods Rebound

2014-03-26 07:00:00
David Song, Strategist

- U.S. Durable Goods Orders to Increase for First Time Since November

- Non-Defense Capital Goods Orders to Rise for Second Straight Month

Trading the News: U.S. Durable Goods Orders

A 1.0% rebound in U.S. Durable Goods Orders may prompt a bullish reaction in the dollar as it raises the outlook for growth and inflation.

Forex-Euro-at-Risks-for-Further-Losses-as-U.S.-Durable-Goods-Rebound_body_ScreenShot255.png, Euro at Risks for Further Losses as U.S. Durable Goods Rebound

Why Is This Event Important:

Indeed, prospects for a stronger recovery may encourage the Federal Open Market Committee (FOMC) to normalize policy sooner rather than later, and we may see Fed Chair Janet Yellen continue to soften her dovish tone for monetary policy as a growing number of central bank officials see a stronger recovery in 2014.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Advance Retail Sales (FEB)

0.2%

0.3%

Average Hourly Earnings (YoY) (FEB)

2.0%

2.2%

Personal Income (JAN)

0.2%

0.3%

Faster wage growth along with the resilience in household consumption may boost demands for large-ticket items, and a positive print may encourage a bullish outlook for the USD as the Fed moves away from its easing cycle.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

U. of Michigan Confidence (MAR P)

82.0

79.9

Consumer Credit (JAN)

$14.000B

$13.698B

NFIB Small Business Optimism (FEB)

93.8

91.4

However, the slowdown in private sector credit paired with the pullback in consumer confidence may generate a dismal release, and another decline in U.S. Durable Goods Orders may trigger a selloff in the greenback as it limits the Fed’s scope to remove the zero-interest rate policy (ZIRP) later this year or in early 2015.

How To Trade This Event Risk(Video)

Join DailyFX on Demand for LIVE EURUSD SSI Readings During the Event

Bullish USD Trade: Demands Increase 1.0% or Greater

  • Need to see red, five-minute candle following the release to consider a long dollar trade
  • If market reaction favors a short EURUSD position, sell pair with two separate position
  • Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward
  • Move stop to entry on remaining position once initial target is hit; set reasonable objective

Bullish USD Trade: Durable Goods Orders Disappoint

  • Need green, five-minute candle to favor a short dollar trade
  • Implement same setup as the bullish USD trade, just in reverse

Potential Price Targets For The Release

EURUSD Daily

Forex-Euro-at-Risks-for-Further-Losses-as-U.S.-Durable-Goods-Rebound_body_Picture_2.png, Euro at Risks for Further Losses as U.S. Durable Goods Rebound

Chart - Created Using FXCM Marketscope 2.0

  • At Risk for Larger Correction Following Higher High (1.3965); Higher Low on Tap?
  • Interim Resistance: 1.3960-70 (61.8% expansion)
  • Interim Support: 1.3600 Pivot to 1.3620 (23.6 retracement)

Impact that the U.S. Durable Goods Orders report has had on EUR/USD during the last release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JAN 2014

02/27/2013 13:30 GMT

-1.7%

-1.0%

+15

+50

January 2014 U.S. Durable Goods Orders

Forex-Euro-at-Risks-for-Further-Losses-as-U.S.-Durable-Goods-Rebound_body_ScreenShot257.png, Euro at Risks for Further Losses as U.S. Durable Goods Rebound

Demands for large-ticket items decline another 1.0% in January following a revised 5.3% drop the month prior, while Non-Defense Capital Goods Orders excluding Aircrafts, a proxy for business investments, unexpectedly increased 1.7% amid forecasts for a 0.2% contraction. Nevertheless, the initial reaction to the data print was short-lived, with the EURUSD coming off of the 1.3650 region, and the reserve currency continued to lose ground throughout the North American trade as the pair closed at 1.3708.

--- 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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