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Dismal US Durable Goods Report to Delay Fed Liftoff? EURUSD Eyes 1.15

Dismal US Durable Goods Report to Delay Fed Liftoff? EURUSD Eyes 1.15

2015-06-23 08:00:00
David Song, Strategist
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- U.S. Durable Goods Orders to Contract for Second Consecutive Month.

- Non-Defense Capital Goods Orders ex Aircrafts to Rebound 0.5%.

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Trading the News: U.S. Durable Goods Orders

Another 1.0% contract in demand U.S. Durable Goods may dampen the appeal of the greenback and generate a near-term advance in EUR/USD as ongoing slack in the real economy raises the risk for a further delay in the Fed’s liftoff.

What’s Expected:

EUR/USD Durable Goods Orders

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Why Is This Event Important:

Fears of a slower recovery may encourage a growing number of Fed officials to adopt a more dovish tone for monetary policy, and we may see the Federal Open Market Committee (FOMC) retain the zero-interest rate policy (ZIRP) throughout 2015 in order to mitigate the downside risks for growth and inflation.

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Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Housing Starts (MAY)

-4.0%

-11.1%

Industrial Production (MoM) (MAY)

0.2%

-0.2%

Factory Orders (APR)

-0.1%

-0.4%

The Fed may continue to trim the 2015 GDP forecast amid the mixed batch of data coming out of the U.S. economy, and another contraction in orders for large-ticket items may push the central bank to further delay the normalization cycle in an effort to encourage a stronger recovery.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Consumer Price Index Core (YoY) (MAY)

1.8%

1.7%

Advance Retail Sales (MoM) (MAY)

1.2%

1.2%

Average Hourly Earnings (YoY) (MAY)

2.2%

2.3%

On the other hand, discounted prices paired with the pickup in private-sector wages may foster greater demand for U.S. Durable Goods, and a positive development may keep the Fed on course to raise the benchmark interest rate later this year as the central bank remains confident in achieving its dual mandate for full-employment and price stability.

How To Trade This Event Risk(Video)

Bearish USD Trade: Orders Contract Another 1.0% or Greater

  • Need to see green, five-minute candle following the release to consider a long trade on EURUSD
  • If market reaction favors a bearish dollar trade, buy EURUSD with two separate position
  • Set stop at the near-by swing low/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

Bullish USD Trade: Demand for Large-Ticket Items Exceed Market Expectations

  • Need red, five-minute candle to favor a short EURUSD trade
  • Implement same setup as the bearish dollar trade, just in the opposite direction

Potential Price Targets For The Release

EURUSD Daily

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Long-term outlook for EUR/USD remains bearish amid the deviation in the policy outlook, but the single currency remains at risk for a relief bounce as European policy makers work to keep Greece within the monetary union.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short EUR/USD since March 9, with the ratio holding near extremes as it sits at -2.12.
  • Interim Resistance: 1.1510 (61.8% expansion) to 1.1532 (February high)
  • Interim Support: 1.0970 (38.2% expansion) to 1.1000 (50% retracement)

Read More:

COT-Yen Positioning is Extreme

Price & Time: EUR/USD Double Top or About to Breakout?

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)

APR

2015

05/26/2015 12:30 GMT

-0.5%

-0.5%

-22

-53

February 2015 U.S. Durable Goods Orders

Dismal US Durable Goods Report to Delay Fed Liftoff? EURUSD Eyes 1.15

Orders for U.S. Durable Goods slipped 0.5% in April after expanding a revised 5.1% the month prior, while Non-Defense Capital Goods Orders excluding Aircrafts, a proxy for future business investments, increased 1.0% during the same period amid forecasts for a 0.3% expansion. A deeper look at the report showed demand for Transportation equipment slipped 0.3% during the month, with orders for electrical equipment falling 0.6%, while demand for machinery increased another 1.0% after climbing 0.1% in March. Despite the limited market reaction to mixed batch of data, the greenback gained ground throughout the North American trade, with EUR/USD slipping below the 1.0900 handle to end the day at 1.0869.

--- Written by David Song, Currency Analyst

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

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