Strong U.S. Durable Goods Orders to Fuel EUR/USD Losses
- U.S. Durable Goods Orders to Rebound 1.7% in October.
- Non-Defense Capital Goods Orders excluding Aircrafts to Increase 0.3%.
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Trading the News: U.S. Durable Goods Orders
A 1.7% rebound in U.S. Durable Goods Orders may heighten the appeal of the greenback and spark a near-term decline in EUR/USD as it puts increased pressure on the Federal Open Market Committee (FOMC) to raise the benchmark interest rate at the last 2016-meeting on December 14.
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Why Is This Event Important:
Fed Funds Futures are pricing a greater than 90% probability for a December rate-hike as ‘the Committee judges that the case for an increase in the federal funds rate has continued to strengthen,’ and Chair Janet Yellen and Co. may continue to normalize monetary policy in the year ahead should the data print reinforce central bank expectations for a ‘moderate’ recovery. However, another unexpected decline in demand for large-ticket items may drag on interest-rate expectations as private-sector consumption remains one of the leading drivers of growth and inflation.
Expectations: Bullish Argument/Scenario
|U. of Michigan Sentiment (NOV P)||87.9||91.6|
|NFIB Small Business Optimism (OCT)||94.1||94.9|
|Average Hourly Earnings (YoY) (OCT)||2.6%||2.8%|
Improved confidence accompanied by the pickup in household earnings may boost orders for U.S. Durable Goods, and a positive development may spark a bullish reaction in the greenback as it fuels bets for an imminent Fed rate-hike.
Risk: Bearish Argument/Scenario
|Consumer Price Index (YoY) (OCT)||1.6%||1.6%|
|Non-Farm Payrolls (OCT)||173K||161K|
|Personal Consumption Expenditure- Core (YoY) (SEP)||1.7%||1.7%|
Nevertheless, sticky price growth paired with the slowdown in employment may dampen demand for large-ticket items, and another disappointing report may weigh on the greenback as it provides the FOMC with greater scope to retain the accommodative policy stance for an extended period of time.
How To Trade This Event Risk(Video)
Bullish USD Trade: Demand for Large-Ticket Items Rebound 1.7% or Greater
- Need red, five-minute candle following the report to consider a short EUR/USD trade.
- If market reaction favors a bullish dollar trade, short EUR/USD with two separate position.
- Set stop at the near-by swing high/reasonable distance from cost; at least 1:1 risk-to-reward.
- Move stop to entry on remaining position once initial target is met, set reasonable limit.
Bearish USD Trade: U.S. Durable Goods Orders Report Disappoints
- Need green, five-minute candle to favor a long EUR/USD trade.
- Implement same strategy as the bullish dollar trade, just in the opposite direction.
Potential Price Targets For The Release
Chart - Created Using Trading View
- Broader outlook for EUR/USD remains tilted to the downside as the bearish trend from May continues to take shape, and the pair stands at risk of extending the decline from earlier this month as long as the Relative Strength Index (RSI) sits in oversold territory; need to see the momentum indicator climb above 30 (textbook buy signal) to favor a larger recovery in the exchange rate.
- Interim Resistance: 1.0780 (100% expansion) to 1.0800 (23.6% retracement)
- Interim Support: 1.0500 (50% expansion) to 1.0517 (December 2015-low)
Impact the U.S. Durable Goods Orders has had on EUR/USD during the last release
|Period||Data Released||Estimate||Actual||Pips Change||Pips Change|
|10/27/2016 12:30 GMT||0.0%||-0.1%||-3||-26|
September 2016 U.S. Durable Goods Orders
Chart - Created Using Trading View
Demand for U.S. Durable Goods narrowed 0.1% in September following a revised 0.3% advance the month prior, while Non-Defense Capital Goods Orders excluding Aircrafts, a proxy for future investment, narrowed 1.2% during the same period amid forecasts for a 0.1% decline. Despite the weakness, it seems as though the Federal Open Market Committee (FOMC) appears to be following a similar path to 2015 as a growing number of central bank officials prepare U.S. household and businesses for a December rate-hike. Market participants showed a limited reaction to the report, with EUR/USD pulling back from a high of 1.0942 to end the day at 1.0893.
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--- Written by David Song, Currency Analyst
To contact David, e-mail email@example.com. Follow me on Twitter at @DavidJSong.
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