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EUR/USD to Stage Near-Term Rebound on Dismal US Durable Goods Report

EUR/USD to Stage Near-Term Rebound on Dismal US Durable Goods Report

2016-03-24 11:00:00
David Song, Shuyang Ren,
Share:

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

- Non-Defense Capital Goods Orders ex Aircrafts to Contract 0.5% After Climbing 3.4% in January.

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Trading the News: U.S. Durable Goods Orders

A 3.0% contraction in orders for U.S. Durable Goods may hamper the near-term advance in the greenback and spur a rebound in EUR/USD should the data print undermine Fed expectations for a ‘consumer-led’ recovery in 2016.

What’s Expected:

EUR/USD US Durable Goods Orders

Click Here for the DailyFX Calendar

Why Is This Event Important:

A slowdown in private-sector consumption, one of the leading drivers of growth and inflation, may push the Federal Open Market Committee (FOMC) to further delay the normalization cycle as the weakening outlook for the global economy derails hopes for a stronger recovery.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

U. of Michigan Confidence (MAR P)

92.2

90.0

Consumer Credit (JAN)

$17.000B

$10.538B

Average Weekly Earnings (YoY) (FEB)

2.5%

2.2%

Subdued wage growth accompanied by the pullback in consumer credit may dampen demand for large-ticket items, and a marked decline in private spending may drag on interest-rate expectations as Fed officials now project two rate-hikes for 2016.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Advance Retail Sales (MoM) (FEB)

-0.2%

-0.1%

Non-Farm Payrolls (FEB)

195K

242K

Personal Spending (JAN)

0.3%

0.5%

However, U.S. households and businesses may take advantage of low borrowing-costs as the Fed largely remains on course to remove the emergency measures, and a positive development may boost the appeal of the greenback especially as the economy approaches ‘full-employment.’

How To Trade This Event Risk(Video)

Bearish USD Trade: Demand for Large-Ticket Items Decline 3.0% 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: U.S. Durable Goods Orders 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

  • EUR/USD may have marked a failed run at the 2016 high (1.1375) as the Relative Strength Index (RSI) fails to retain the bullish formation carried over from the previous month, but the pair may continue to consolidate with the broad range from 2015 as market participants continue to mull the timing of the next Fed rate-hike.
  • 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)

Check out the short-term technical levels that matter for USD/CAD heading into the report!

Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the "Traits of Successful Traders" series.

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)

JAN

2016

02/25/2016 13:30 GMT

2.9%

4.9%

-26

-11

January 2016 U.S. Durable Goods Orders

EUR/USD Chart

U.S. Durable Goods Orders bounced back in January, with demand for large-ticket items increasing 4.9% after contracting a revised 4.6% the month prior. At the same time, Non-Defense Capital Goods Orders excluding Aircrafts,a proxy for future business investment, advanced 3.9% during the same period amid forecasts for a 1.0% print, and the pickup in private-sector activity may encourage the Federal Reserve to further normalize monetary policy in 2016 especially as the U.S. economy approaches the natural-rate of unemployment. Nevertheless, the initial bullish reaction in the greenback was short-lived, with EUR/USD climbing back above the 1.1000 handle during the North American trade to end the day at 1.1016.

Read More:

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EUR/USD – The Abyss Hopefully Leads to Clarity

COT-Small Trader Net Long Position in AUD is Largest Since July 2014

USD/JPY-More at the 110.66 Low Than You Might Think

Get our top trading opportunities of 2016 HERE

--- 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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