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Upbeat U.S. Durable Goods to Keep EUR/USD Contained Within Range

Upbeat U.S. Durable Goods to Keep EUR/USD Contained Within Range

David Song, Shuyang Ren,

- U.S. Durable Goods Orders to Rebound 0.6.% in March.

- Non-Defense Capital Goods Orders ex Aircrafts to Climb 0.3% After Contracting -1.4% in February.

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

Trading the News: U.S. Durable Goods Orders

A 0.6% rebound in orders for U.S. Durable Goods may heighten the appeal of the greenback and spur a bearish retraction in EUR/USD as it raises the fundamental outlook for the world’s largest economy.

What’s Expected:

EUR/USD Durable Goods Orders

Click Here for the DailyFX Calendar

Why Is This Event Important:

Signs of a stronger recovery may encourage bets for a mid-2015 Fed rate hike, but the recent slew of weaker-than-expected data prints may encourage the central bank to further delay its normalization cycle in an effort to combat the ongoing slack in the real economy.

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Expectations: Bullish Argument/Scenario

Release

Expected

Actual

U. of Michigan Confidence (APR P)

94.0

95.9

Average Hourly Earnings (YoY) (MAR)

2.0%

2.1%

Personal Spending (FEB)

0.3%

0.4%

Improved confidence paired with the uptick in wage growth may generate greater demand for large-ticket items, and a positive development may boost interest rate expectations as the Fed remains on course to remove the zero-interest rate policy (ZIRP).

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Consumer Price Index Core (YoY) (MAR)

1.7%

1.8%

Advance Retail Sales (MoM) (MAR)

1.1%

0.9%

Personal Spending (FEB)

0.2%

0.1%

However, fading discounts along with the ongoing weakness in household spending may drag on orders for durable goods, and a dismal print may dampen the appeal of the greenback as it raises the Fed’s scope to retain its current policy beyond mid-2015.

How To Trade This Event Risk(Video)

Bullish USD Trade: Orders Rebound 0.6% 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: Demand for Durable Goods Falter

  • 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 Chart

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Long-term outlook for EUR/USD remains bearish, but the triangle/wedge formation may .
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short EUR/USD since March 9, with the ratio holding around -1.70.
  • Interim Resistance: 1.0970 (38.2% expansion) to 1.0990 (50% retracement)
  • Interim Support: 1.0487 (3/13 close) to 1.0515 (50% expansion)

Read More:

GBPJPY Breakout Eyes 181- Long Scalps Favored Above 179

NZD/USD Failure to Close Above 0.7700 Raises Risk for Near-Term Top

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)

FEB

2015

03/25/2015 13:30 GMT

0.2%

-1.4%

-9

-18

February 2015 U.S. Durable Goods Orders

EUR/USD Chart

Orders for U.S. Durable Goods unexpectedly shrank 1.4% in February following a revised 1.9% expansion the month prior. The contraction was largely drive by a drop in transportation, with demand for non-defense aircrafts slipping 8.9% from the previous month. The slowdown in private-sector consumption may become a growing concern for the Fed as lower energy costs fail to boost household spending, and the central bank may look to further delay its normalization cycle in an effort to encourage a stronger recovery. Despite the weaker-than-expected prints, the initial market reaction was rather limited as EUR/USD struggled to hold above the 1.1000 handle during the North American trade to end the day at 1.0973.

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

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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