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Strong Rebound in U.S. Durable Goods Orders to Fuel EUR/USD Pullback

Strong Rebound in U.S. Durable Goods Orders to Fuel EUR/USD Pullback

David Song, Strategist

- U.S. Durable Goods Orders to Increase for First Time Since April.

- Non-Defense Capital Goods Orders to Expand for Second Straight Month.

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

Trading the News: U.S. Durable Goods Orders

A 3.4% rebound in orders for U.S. Durable Goods may boost the appeal for the greenback and spur a larger pullback in EUR/USD as it puts increased pressure on the Federal Open Market Committee (FOMC) to raise the benchmark interest rate in 2016.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

Increased demand for large-ticket items may encourage the FOMC to further normalize monetary policy over the coming months as it highlights an improved outlook for growth and inflation, and we may see a greater dissent at the next interest-rate decision on September 21 as central bank officials anticipate a stronger recovery in the second-half of the year.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

New Home Sales (MoM) (JUL)

-2.0%

12.4%

Industrial Production (MoM) (JUL)

0.3%

0.7%

Non-Farm Payroll (JUL)

180K

255K

The pickup in home sales accompanied by the ongoing improvement in the labor market may encourage greater demand for U.S. Durable Goods, and a positive development may spur a larger rift within the FOMC especially as the U.S. economy approaches ‘full-employment.’

Risk: Bearish Argument/Scenario

Release

Expected

Actual

U. of Michigan Confidence (AUG P)

91.5

90.4

Advance Retail Sales (MoM) (JUL)

0.4%

0.0%

Consumer Credit (JUN)

$16.000B

$12.320B

Nevertheless, waning household sentiment paired with the slowdown in private-sector credit may drag on orders for large-ticket items, and a dismal Durable Goods Orders report may drag on the greenback as it provides the Fed’s greater flexibility to retain the current policy throughout the remainder of the year.

How To Trade This Event Risk(Video)

Bullish USD Trade: Durable Goods Orders Rebound 3.4% or Greater

  • Need red, five-minute candle following the statement to consider a short trade on EUR/USD.
  • If market reaction favors a bullish dollar trade, sell EUR/USD 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 Disappoints

  • Need green, five-minute candle to favor a long EUR/USD trade.
  • Implement same setup as the bullish dollar trade, just in reverse.

Potential Price Targets For The Release

EURUSD Daily

EUR/USD Daily Chart
  • EUR/USD may continue to retrace the decline from the April high (1.1615) as the pair preserves the upward trend from late-July, while the Relative Strength Index (RSI) breaks out of the bearish formation carried over from May.
  • Key Resistance: 1.1760 (61.8% retracement) to 1.1810 (38.2% retracement)
  • Key Support: Interim Support: 1.0380 (78.6% expansion) to 1.0410 (61.8% expansion)

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 Orders report has had on EUR/USD during the previous release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JUN 2016

07/27/2016 12:30 GMT

-1.4%

-4.0%

+3

+63

June 2016 U.S. Durable Goods Orders

EUR/USD 5-Minute

EUR/USD Chart

Orders for U.S. Durable Goods narrowed 4.0% in June after contracting a revised 2.8% the month prior, while Non-Defense Capital Goods Orders excluding Aircrafts, a proxy for future business investments, increased 0.2% after falling 0.5% in May. A deeper look at the report showed the decline was led by a 10.5% drop in the Transportation sector, with demand for computers & electronics contracting 2.2%, while orders for Electrical equipment climbed 0.8% during the same period. The dollar struggled to hold its ground following the report, with EUR/USD climbing above the 1.1000 handle and ending the day at 1.1056.

Get our top trading opportunities of 2016 HERE

Read More:

WTI Crude Oil Price Forecast: Oil Firm on News of Iranian Support

EURUSD: Waiting for the Dip & Rip- Key Resistance at 1.1400

S&P 500: A Look at the Short-term Chart-scape

COT-Record British Pound Ownership Profile for 4th Straight Week

--- Written by David Song, Currency Analyst

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.

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

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