- 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:
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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
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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- 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.
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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 |
|---|---|---|---|---|---|
DEC 2015 | 01/28/2016 13:30 GMT | -0.7% | -5.1% | +9 | +29 |
December 2015 U.S. Durable Goods Orders
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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