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Dismal Durable Goods Report to Prop Up EUR/USD Ahead of Yellen Speech

Dismal Durable Goods Report to Prop Up EUR/USD Ahead of Yellen Speech

2017-08-25 08:00:00
David Song, Strategist
Share:

- U.S. Durable Goods Orders to Contract.6.0% in July.

- Non-Defense Capital Goods Orders ex. Aircrafts to Increase 0.4%.

- See How Shifts in EUR/USD Retail Positioning are Impacting Trend- Click Here to Learn More About Sentiment.

Trading the News: U.S. Durable Goods Orders

US Durable Goods Orders

A 6.0% decline in orders for U.S. Durable Goods may prop up EUR/USD going into the end of the month as it dampens the outlook for growth and inflation.

Why Is This Event Important:

Another batch of mixed data prints may dampen the appeal of the greenback as it encourages the Federal Open Market Committee (FOMC) to carry the current policy into 2018.

Even though ‘the Committee expects to begin implementing its balance sheet normalization program relatively soon, Chair Janet Yellen may strike a more cautious tone at the Kansas City Fed Economic Symposium in Jackson Hole, Wyoming as many officials ‘saw some likelihood that inflation might remain below 2 percent for longer than they currently expected, and several indicated that the risks to the inflation outlook could be tilted to the downside.’ In turn, Chair Yellen and Co. may project a more shallow path for the Fed Funds rate at the next rate decision on September 20, with the U.S. dollar at risk of facing additional headwinds over the remainder of the year especially as the outlook for fiscal policy remains clouded with high uncertainty.

Impact that the U.S. Durable Goods Orders 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)

JUN P

2017

07/27/2017 12:30:00 GMT

3.9%

6.5%

0

-24

June 2017 U.S. Durable Goods Orders

EUR/USD 5-Minute Chart

EUR/USD Chart

Demand for U.S. Durable Goods surged 6.5% in June to mark the larger advance since 2014, while Non-Defense Capital Goods Orders excluding Aircrafts, a proxy for business investment, fell 0.1% during the same period amid forecasts for a 0.3% rise. The mixed developments coming out of the U.S. economy may encourage the Federal Open Market Committee (FOMC) to retain the current policy throughout the remainder of the year as inflation continues to run below the 2% target. EUR/USD showed a limited reaction to the series of mixed data prints, but the pair tracked lower throughout the North American trade to end the day at 1.1675.

How To Trade This Event Risk(Video)

Bearish USD Trade: U.S. Durable Goods Orders Contract 6.0% or Greater

  • Need a green, five-minute candle following the report to consider a long EUR/USD trade.
  • If the market reaction favors a bearish dollar position, buy EUR/USD with two separate lots.
  • Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward.
  • Move stop to breakeven on remaining position once initial target is met, set reasonable limit.

Bullish USD Trade: Demand for Large-Ticket Items Beat Market Expectations

  • Need a red, five-minute EUR/USD candle to consider a long dollar trade.
  • Implement the same approach as the bearish dollar position, just in reverse.

Potential Price Targets For The Release

EUR/USD Daily Chart

EUR/USD Daily Chart

Check out our EUR/USD quarterly projections in our FREE DailyFX Trading Forecasts

  • Broader outlook for EUR/USD remains constructive as both price and the Relative Strength Index (RSI) preserve the upward trends carried over from late-2016, with the next topside hurdle coming in around 1.1960 (38.2% retracement).
  • However, the lack of momentum to fill-in the gap from January-2015 (1.2000 down to 1.1955) raises the risk for a larger correction especially as the bull-flag formation fails to pan out; may see EUR/USD continue to face range-bound conditions as the 1.1670 (50% retracement) region continues to offer support.
  • Interim Resistance: 1.1960 (38.2% retracement) to 1.2042 (July 2012-low)
  • Interim Support: 1.1390 (61.8% retracement) to 1.1400 (61.8% expansion)

EUR/USD Retail Sentiment

EUR/USD Sentiment

Retail trader data shows 28.1% of traders are net-long EUR/USD with the ratio of traders short to long at 2.56 to 1. In fact, traders have remained net-short since April 18 when EUR/USD traded near 1.07646; price has moved 9.7% higher since then. The number of traders net-long is 8.1% lower than yesterday and 22.6% lower from last week, while the number of traders net-short is 4.8% higher than yesterday and 20.4% higher from last week.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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