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Waning Demand for U.S. Durable Goods to Fuel EUR/USD Advance

Waning Demand for U.S. Durable Goods to Fuel EUR/USD Advance

2015-12-23 08:00:00
David Song, Shuyang Ren,
Share:

- U.S. Durable Goods Orders to Contract for Sixth Time in Last 11-Months.

- Non-Defense Capital Goods Orders ex Aircrafts to Decline for First Time Since August.

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Trading the News: U.S. Durable Goods Orders

A 0.7% decline in orders for U.S. Durable Goods accompanied by a weakening outlook for business investments may produce near-term headwinds for the greenback and spark a larger rebound in EUR/USD as it drags on interest rate expectations.

What’s Expected:

EUR/USD Durable Goods Orders

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Why Is This Event Important:

Even though the Federal Open Market Committee (FOMC) appears to be on course to further normalize monetary policy in the year ahead, signs of persistent slack in the real economy may keep the ‘data dependent’ central bank on the sidelines throughout the first-half of 2016 in an effort to mitigate the downside risks surrounding the region.

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Expectations: Bearish Argument/Scenario

Release

Expected

Actual

U. of Michigan Confidence (DEC P)

92.0

91.8

Consumer Credit (OCT)

$20.000B

$15.982B

Average Hourly Earnings (YoY) (NOV)

2.3%

2.3%

Subdued wage growth along with the slowdown in private-sector credit may drag on demand for large-ticket items, and a sharp decline in Durable Goods Orders may prompt the central bank endorse a wait-and-see approach at the January 27 interest rate decision as it dampens the outlook for growth and inflation.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Gross Domestic Product (Annualized) (QoQ) (3Q F)

1.9%

2.0%

Non-Farm Payrolls (NOV)

200K

211K

ADP Employment Change (NOV)

190K

217K

However, U.S. households may boost consumption as the economy approaches ‘full-employment,’ and signs of a stronger recovery may boost the appeal of the greenback as market participants look for higher borrowing-costs over the coming months.

How To Trade This Event Risk(Video)

Bearish USD Trade: Orders Contract 0.7% 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 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

  • The post-ECB rally in EUR/USD may gather pace in the days ahead as the pair continues to find near-term support around the 1.0800 handle (50% expansion), with the monthly high (1.1059) largely in focus as it lines up with the 100-Day SMA (1.1054).
  • DailyFX Speculative Sentiment Index (SSI)shows the retail crowd remains net-short EUR/USD since December 17, but the ratio appears to be working its way back towards recent extremes as it slips to -1.52, with 40% of traders now long.
  • Interim Resistance: 1.1052 (November high) to 1.1090 (50% retracement)
  • Interim Support: Interim Support: 1.0380 (78.6% expansion) to 1.0410 (61.8% expansion)

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)

OCT

2015

11/25/2015 13:30 GMT

1.7%

3.0%

0

+37

October 2015 U.S. Durable Goods Orders

Waning Demand for U.S. Durable Goods to Fuel EUR/USD Advance

U.S. Durable Goods Orders exceeded market estimates, with demand for large-ticket items rebounding 3.0% in October following a revised 0.8% contraction the month prior. At the same time, Non-Defense Capital Goods Orders excluding Aircrafts,a proxy for future business investment, unexpectedly climbed another1.3% after increasing 0.5% in September. The pickup in private-sector consumption may encourage the Federal Reserve to layout a more detailed exit strategy as the central bank anticipates a stronger recovery going forward. The market reaction to the better-than-expected print was short-lived, with EUR/USD climbing higher during the North American trade to end the day at 1.0623.

*As we approach the holidays and thus illiquid markets, it's worth reviewing principles that help protect your capital. We call these principles the "Traits of Successful Traders."

Three Factors Warn of Perfect Storm in FX Markets - Caution Advised

Read More:

Price & Time: USDOLLAR - Negative December Seasonality A Dud?

DAX 30: The Euro, the Force Is Strong With This One

USD/JPY Risks Larger Pullback on Dismal US GDP, Sticky Japan CPI

Canadian Dollar Hits 11-yr Low vs. USD on Wholesales Trade Data Miss & Macro Factors

--- 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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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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