- U.S. Durable Goods Orders to Pick Up for First Time in Three-Months.

- Non-Defense Capital Goods Orders ex Aircrafts to Rebound 1.0% After Contracting 4.3% in December.

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Trading the News: U.S. Durable Goods Orders

A 2.5% rebound in orders for U.S. Durable Goods may heighten the appeal of greenback and generate fresh weekly lows in EUR/USD as it puts increased pressure on the Federal Open Market Committee (FOMC) to implement higher borrowing-costs over the coming months.

What’s Expected:

EUR/USD Durable Goods Orders

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Why Is This Event Important:

With Fed officials looking for a ‘consumer-led’ recovery in 2016, increased demand for large-ticket items may keep the central bank on course to further normalize monetary policy as private-sector consumption remains one of the leading drivers of growth and inflation.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Average Hourly Earnings (YoY) (JAN)

2.2%

2.5%

Consumer Credit (DEC)

$16.000B

$21.267B

Personal Income (DEC)

0.2%

0.3%

The pickup in household earnings accompanied by the ongoing expansion in private-sector lending may spur a meaningful rebound in Durable Goods Orders, and a marked rebound may spur a bullish reaction in the dollar as it boosts interest-rate expectations.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Consumer Confidence (FEB)

97.2

92.2

NFIB Small Business Confidence (JAN)

94.5

93.9

Gross Domestic Product (Annualized) (QoQ) (4Q A)

0.8%

0.7%

However, waning confidence accompanied by fears of a slower recovery may drag on household spending, and a dismal development may encourage the FOMC to endorse a wait-and-see approach throughout 2016 amid the external headwinds surrounding the U.S. economy.

How To Trade This Event Risk(Video)

Bullish USD Trade: Durable Goods Orders Increase 2.5% or Greater

  • Need to see red, five-minute candle following the release to consider a short trade on EURUSD.
  • If market reaction favors a bullish 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 Large-Ticket Items Fail to Meet Market Forecast

  • Need green, five-minute candle to favor a long EURUSD trade.
  • Implement same setup as the bullish dollar trade, just in the opposite direction.

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Potential Price Targets For The Release

EURUSD Daily

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • EUR/USD appears to have marked a failed run at the October high (1.1494) especially as the Relative Strength Index (RSI) fails to preserve the bullish formation carried over from the end of 2015.
  • Interim Resistance: 1.1510 (50% retracement) to 1.1520 (61.8% expansion)
  • Interim Support: Interim Support: 1.0380 (78.6% expansion) to 1.0410 (61.8% expansion)

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EUR/USD SSI
  • The DailyFX Speculative Sentiment Index (SSI) shows retail FX has flipped back net-short EUR/USD on February 22 after marking an extreme reading earlier this month as the ratio slipped to -2.00.
  • The ratio continues to push into negative territory as it slips to -1.17, with open interest 6.1% below its monthly average as short positions are 13.1% lower from the previous week.

Why and how do we use the SSI in trading? View our video and download the free indicator here

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)

DEC

2015

01/28/2016 13:30 GMT

-0.7%

-5.1%

+9

+29

December 2015 U.S. Durable Goods Orders

EUR/USD Chart

U.S. Durable Goods Orders slipped another 5.1% in December after contracting a revised 0.5% the month prior to mark the largest decline in the last 10-months. Non-Defense Capital Goods Orders excluding Aircrafts,a proxy for future business investment, also declined 4.3% during the same time following the 1.1% decline in November. Despite Fed expectations for a ‘consumer-led’ recovery in 2016, fading demands for large-ticket items may encourage the Fed to endorse a wait-and-see approach at the March 16 interest rate decision. The greenback lost ground following the dismal print, with EUR/USD climbing above the 1.0925 region, but the move tapered off following the European close as the pair ended the day at 1.0938.

Read More:

AUD/JPY Coiling at Key Support- Bearish Invalidation at 8200

USD/CAD Technical Analysis: On the Cusp of a Big Drop as Oil Stumbles?

USD/CHF Technical Analysis: Staying Short and Looking for More

US Dollar – Where the Rubber Meets the Road?

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--- 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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