- 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:
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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
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 | Pips Change |
|---|---|---|---|---|---|
APR 2015 | 05/26/2015 12:30 GMT | -0.5% | -0.5% | -22 | -53 |
February 2015 U.S. Durable Goods Orders
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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