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EUR/USD Bullish Setup to Shine on Weak US Durable Goods Orders

EUR/USD Bullish Setup to Shine on Weak US Durable Goods Orders

David Song, Shuyang Ren,

- U.S. Durable Goods Orders to Contract for Fourth Time in Last Seven-Months.

- Non-Defense Capital Goods Orders ex Aircrafts to Increase Another 0.3% in July.

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

Trading the News: U.S. Durable Goods Orders

A 0.4% contraction in U.S. Durable Goods Orders may drag on the greenback and spur a further advance in EUR/USD as the ongoing slack in the real economy dampens market speculation for a Fed rate hike at the September 17 interest rate decision.

What’s Expected:

EUR/USD Durable Goods Orders

Click Here for the DailyFX Calendar

Why Is This Event Important:

The Federal Open Market Committee (FOMC) may largely retain its current policy next month as the slowdown in global growth undermines the central bank’s forecast for a stronger recovery, and a marked decline in demand for large-ticket items may drag on interest rate expectations as Chair Janet Yellen remains in no rush to normalize monetary policy.

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Expectations: Bearish Argument/Scenario

Release

Expected

Actual

U. of Michigan Confidence (AUG P)

93.5

92.9

Employment Cost Index (2Q)

0.6%

0.2%

Average Hourly Earnings (YoY) (JUL)

2.3%

2.1%

Waning confidence paired with subdued wage growth may drag on consumption, and a sharp slowdown in Durable Goods Orders may encourage the FOMC to retain the zero-interest rate policy (ZIRP) throughout 2015 in an effort to mitigate the downside risks surrounding the economy.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Advance Retail Sales (MoM) (JUL)

0.6%

0.6%

Consumer Credit (JUN)

$17.000B

$20.740B

Personal Spending (JUN)

0.2%

0.2%

On the other hand, the pickup in retail sales along with the expansion in private-sector credit may generate greater demand for large-ticket items, and signs of stronger consumption may boost the appeal of the reserve currency as the Fed continues to prepare U.S. households and businesses for higher borrowing-costs.

How To Trade This Event Risk(Video)

Bearish USD Trade: Orders Decline 0.4% 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 Top Market Forecast

  • 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

  • Failure to retain the wedge/triangle formation from earlier this year raises the risk for a larger correction in EUR/USD; will continue to watch the topside targets as long as the bullish RSI momentum remains in play.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short EUR/USD since March 9, with the ratio coming off of recent extremes as it narrows to -1.89 as 35% of traders are long.
  • Interim Resistance: 1.1760 (61.8% retracement) to 1.1810 (38.2% retracement)
  • Interim Support: Interim Support: 1.0790 (50% expansion) to 1.0800 (23.6% expansion)

Read More:

Gold Advance Capped- Bullish Setup at Risk Below $1130

Price & Time: Key Timing Hurdle For Kiwi Downtrend

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

2015

07/27/2015 12:30 GMT

3.2%

3.4%

+36

+24

June 2015 U.S. Durable Goods Orders

EUR/USD Chart

Orders for U.S. Durable Goods increased 3.4% in June after contracting a revised 2.3% the month prior, while Non-Defense Capital Goods Orders excluding Aircrafts, a proxy for future business investments, rose 0.9% following a revised 0.8% decline in May. Greater demand for large ticket-items may keep the Fed on course to normalize monetary policy in 2015, but the downside risks surrounding the global economy may become a growing concern for the central bank especially as it struggles to achieve the 2% target for inflation. Despite the better-than-expected print, the greenback struggled to hold its ground following the report, with EUR/USD climbing above the 11075 region to end the session at 1.1084.

--- 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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