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EUR/USD Risks Larger Rebound on Dismal U.S. Durable Goods Orders

EUR/USD Risks Larger Rebound on Dismal U.S. Durable Goods Orders

David Song, Strategist

- U.S. Durable Goods Orders to Contract 2.0% in January.

- Advance Goods Trade Balance Deficit to Widen to $72.3B.

Trading the News: U.S. Durable Goods Orders

DailyFX Calendar

A widening trade deficit paired with 2.0% contraction in U.S. Durable Goods Orders may trigger a near-term rebound in EUR/USD as it dampens the outlook for growth and inflation.

Atlanta Fed GDP Now Estimate

At the same time, a batch of dismal developments may also spur another downward revision in the Atlanta Fed’s GDP Now forecast, and the U.S. dollar stands at risk of facing headwinds ahead of the Federal Open Market Committee (FOMC) interest rate decision on March 21 as the data undermines the central bank’s scope to further normalize monetary policy. Even though the FOMC is widely anticipated to deliver a 25bp rate-hike next month, Chairman Jerome Powell and Co. may continue to project a neutral Fed Funds rate around 2.75% to 3.00% as ‘some participants saw an appreciable risk that inflation would continue to fall short of the Committee's objective.’

Nevertheless, a set of positive data prints may spark a bullish reaction in the U.S. dollar as it encourages the FOMC to implement three rate-hikes in 2018.

Impact that the U.S. Durable Goods Orders report has had on EUR/USD during the previous print

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

DEC

2017

01/26/2018 13:30 GMT

0.8%

2.9%

-9

-4

December 2017 U.S. Durable Goods Orders

EUR/USD 10-Minute Chart

EUR/USD 10-Minute Chart

Orders for U.S. Durable Goods jumped 2.9% in December after expanding a revised 1.7% the month prior, while Non-Defense Capital Goods Orders excluding Aircrafts, a proxy for business investment, narrowed 0.3% during the same period amid forecasts for a 0.6% rise. A separate report showed the U.S. economy growing an annualized 2.6% during the last three-months of 2017 amid projects for a 3.0% print, while the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, climbed to 1.9% per annum from 1.3% in the third-quarter.

The batch of assorted data prints sparked a limited reaction in EUR/USD, with the pair largely consolidating throughout the day to close at 1.2429. New to trading? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.

EUR/USD Daily Chart

EUR/USD Daily Chart

For additional resources, download and review the FREE DailyFX Advanced Guide for Trading the News to learn our 8 step strategy.

  • Broader outlook for EUR/USD remains constructive as the pair preserves the upward trend carried over from late last year, but the Relative Strength Index (RSI) appears to be decoupling with price as the momentum indicator threatens the bullish formation from October.
  • In turn, the series of failed attempts to push above the 1.2370 (61.8% expansion) region raises the risk for a larger correction in EUR/USD, with a break/close below 1.2230 (50% retracement) opening up the 1.2130 (50% retracement) hurdle.

--- 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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