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EUR/USD May Face Larger Gap on Strong U.S. Durable Goods Orders

EUR/USD May Face Larger Gap on Strong U.S. Durable Goods Orders

David Song, Shuyang Ren,

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

- 7.1% Rise Would Mark Fastest Pace of Growth Since March 2011.

For more updates, sign up for David's e-mail distribution list.

Trading the News: U.S. Durable Goods Orders

A 8.0% rise in demand for U.S. Durable Goods may spur a bullish reaction in the greenback (bearish EUR/USD) as it raises the scope for a stronger recovery in the second-half of 2014.

What’s Expected:

EUR/USD Durable Goods Orders

Click Here for the DailyFX Calendar

Why Is This Event Important:

It seems as though the Federal Open Market Committee (FOMC) is running out of arguments to retain its highly accommodative policy stance amid the ongoing improvements in the world’s largest economy, and the bullish sentiment surrounding the dollar may gather pace throughout the coming months should we see a growing number of central bank officials adopt a more hawkish tone for monetary policy.

For LIVE SSI Updates Ahead of the U.S. GDP Print, Join DailyFX on Demand

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

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

3.0%

4.0%

Personal Consumption (2Q A)

1.9%

2.5%

Consumer Confidence (JUL)

85.4

90.9

The pickup in household sentiment along with the resilience in private sector consumption may generate increased demand for U.S. Durable Goods, and a positive print may heighten the bullish sentiment surrounding the dollar as it raises the outlook for growth and inflation.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Consumer Price Index Core (YoY) (JUL)

1.9%

1.9%

Consumer Credit (JUN)

$18.650B

$17.255B

Average Hourly Earnings (YoY) (JUL)

2.2%

2.0%

However, sticky inflation paired with subdued wage growth may drag on demand for large-ticket items, and a dismal development may serve as a fundamental catalyst to spur a larger correction in the reserve currency as it weighs on interest rate expectations.

How To Trade This Event Risk(Video)

Bullish USD Trade: Orders Increase 8.0% or Greater

  • Need to see red, five-minute candle following the release to consider a short trade on EURUSD
  • If market reaction favors a long dollar trade, sell EURUSD 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 limit

Bearish USD Trade: Durable Goods Report Disappoints

  • Need green, five-minute candle to favor a long EURUSD trade
  • Implement same setup as the bullish dollar trade, just in the opposite direction

Potential Price Targets For The Release

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Downside targets remain favored as long as RSI holds in oversold territory
  • Interim Resistance: 1.3510 (38.2% expansion) to 1.3520 (38.2% retracement)
  • Interim Support: 1.3140 (38.2% retracement) to 1.3150 Pivot

Read More:

AUDCHF Gap Setup- 8545 Resistance Critical

Gold Vulnerable As Safe-Haven Demand Ebbs, Crude Awaiting Fresh Cues

Impact that the U.S. Durable Goods 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)

JUN

2014

07/25/2014 12:30 GMT

0.5%

0.7%

- 4

- 8

June 2014 U.S. Durable Goods Orders

EUR/USD Chart

Orders for U.S. Durable Goods accelerated at a rate of 0.7% in June, exceeding estimates for 0.5% rise. The print was also much better than that in May, which showed a revised 1.0% contraction. The strength mainly came from increase in demand for commercial aircraft and machinery. However, the better-than-expected figure had a limited impact on the dollar. During the rest of the North America trade, the EUR/USD fluctuated around 1.3430 and closed at 1.3429.

--- Written by David Song, Currency Analyst and Shuyang Ren

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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