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Dismal U.S. Durable Goods Report to Spark EUR/USD Rebound

Dismal U.S. Durable Goods Report to Spark EUR/USD Rebound

2016-09-28 08:00:00
David Song, Strategist
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- U.S. Durable Goods Orders to Contract for Fourth Time in 2016.

- Non-Defense Capital Goods Orders to Slow for Fourth Time This Year.

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Trading the News: U.S. Durable Goods Orders

A 1.5% contraction in orders for U.S. Durable Goods may drag on the greenback and spark a short-term rebound in EUR/USD as it dampens market expectations for a 2016 Fed rate-hike.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

It seems as though the Federal Open Market Committee (FOMC) will follow a similar path to 2015 as a growing number of central bank officials push for a rate-hike, and we may see a larger dissent at the November policy meeting as the committee ‘judges that the case for an increase in the federal funds rate has strengthened.’ However, signs of a slowing recovery may push Fed officials to project an even lower path for interest rates, and the dollar stands at risk of facing headwinds in 2017 should the central bank largely endorse a wait-and-see approach for the year ahead.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Consumer Price Index Core (AUG)

2.2%

2.3%

Advance Retail Sales (MoM) (AUG)

-0.1%

-0.3%

Average Hourly Earnings (YoY) (AUG)

2.5%

2.4%

Sticky prices accompanied subdued wage growth may drag on demand for large-ticket items, and a dismal development may trigger a bearish reaction in the U.S. dollar as market participants push out bets for the next Fed rate-hike.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Consumer Confidence (SEP)

99.0

104.1

Consumer Credit (JUL)

$16.000B

$17.713B

Pending Home Sales (MoM) (JUL)

0.7%

1.3%

Nevertheless, improved confidence paired with the expansion in private-sector credit may boost orders for U.S. durable goods, and a positive print may heighten the appeal of the greenback as it puts increased pressure on the FOMC to implement borrowing-costs.

How To Trade This Event Risk(Video)

Bearish USD Trade: Durable Goods Orders Contract 1.5% or Greater

  • Need green, five-minute candle following the report to consider a long trade on EUR/USD.
  • If market reaction favors a bearish dollar trade, buy EUR/USD 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 Picks Up for Second Straight Month

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

Potential Price Targets For The Release

EURUSD Daily

EUR/USD Daily Chart

Chart - Created Using Trading View

  • EUR/USD looks poised to face a narrowing range going into the end of the month as it remains stuck within a triangle/wedge formation, but the pair stands at risk for a key break as price approaches the apex; may see the pair extend the advance from earlier this year as the Relative Strength Index (RSI) preserves the bullish formation carried over from the summer months.
  • Interim Resistance: 1.1300 (23.6% retracement) to 1.1330 (38.2% expansion)
  • Interim Support: 1.1090 (50% retracement) to 1.1110 (50% retracement)

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

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)

JUL 2016

08/25/2016 12:30 GMT

3.4%

4.4%

+5

-8

July 2016 U.S. Durable Goods Orders

EUR/USD 5-Minute

EUR/USD Chart

Demand for U.S. Durable Goods bounced back 4.4% in July after contracting a revised 4.2% the month prior, while Non-Defense Capital Goods Orders excluding Aircrafts, a proxy for business investment, climbed 1.6% during the same period amid forecasts for a 0.2% print. A deeper look at the report showed orders for nondefense aircrafts surged 89.9% to generate a 10.5% rise in the Transportation sector, with demand for computers and electronics advancing 3.6%, while orders for machinery advanced another 1.6% after expanding a marginal 0.3% in June. The report sparked a rather limited reaction in EUR/USD, with the pair

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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