EUR/USD Risks Larger Rebound On Dismal U.S. Durable Goods Orders
MarketPulse | Nov 26, 2014 06:21AM ET
- U.S. Durable Goods Orders to Contract for Third Straight Month.
- Non-Defense Capital Goods Orders ex Aircrafts to Expand for Fifth Time in 2014.
Trading the News: U.S. Durable Goods Orders
Another 0.6% contract in orders for U.S. Durable Goods may generate a more meaningful rebound in EUR/USD as it dampens the growth and inflation outlook for the world’s largest economy.
What’s Expected:
Why Is This Event Important:
The threat of a slower recovery may further delay the Fed’s normalization cycle as Chair Janet Yellen remains in no rush to remove the zero-interest rate policy (ZIRP), and the dollar may face a larger correction over the near-term should interest rate expectations falter.
Expectations: Bearish Argument/Scenario
|
Release |
Expected |
Actual |
|
Gross Domestic Product (Annualized) (QoQ) (3Q P) |
3.3% |
|
|
Consumer Price Index (YoY) (OCT) |
1.6% |
1.7% |
|
Average Hourly Earnings (YoY) (OCT) |
2.1% |
2.0% |
Sticky inflation paired with subdued wage growth may sap demand for large-ticket items, and a dismal durable goods report may drag on the greenback as it dampens the prospects for a stronger recovery.
Risk: Bullish Argument/Scenario
|
Release |
Expected |
Actual |
|
U. of Michigan Confidence (NOV P) |
87.5 |
89.4 |
|
Advance Retail Sales (MoM) (OCT) |
0.2% |
0.3% |
|
Wholesale Trade Sales (MoM) (SEP) |
-0.1% |
0.2% |
Nevertheless, the ongoing improvement in consumer confidence may generate a better-than-expected print, and a rebound in demand for U.S. Durable Goods may heighten the bullish sentiment surrounding the dollar as the Fed is widely expected to raise the benchmark interest rate in 2015.
How To Trade This Event Risk(Video )
Bearish USD Trade: Orders Contract 0.6% or Greater
- Need to see green, five-minute candle following the release 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
Get The News You Want
Bearish USD Trade: Demand for Large-Ticket Items Improve
- Need red, five-minute candle to favor a short EUR/USD trade
- Implement same setup as the bearish dollar trade, just in the opposite direction
Potential Price Targets For The Release
h2 EUR/USD Daily Chart/h2- Will watch the November high (1.2599) as EUR/USD holds above the monthly low (1.2356).
- Interim Resistance: 1.2610 (61.8% expansion) to 1.2620 (50% retracement)
- Interim Support: 1.2280 (100% expansion) to 1.2300 pivot
Impact that the U.S. Durable Goods 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) |
|
SEP 2014 |
10/28/2014 12:30 GMT |
0.5% |
-1.3% |
+ 42 |
+ 27 |
September 2014 U.S. Durable Goods Orders
Demand for U.S. Durable Goods slipped another 1.3% in September following the record 18.3% contraction the month prior. Orders for non-defense capital goods excluding aircraft, a proxy future business investments, also fell 1.7% during the same period. The persistent weakness in demand for large-ticket items may further dampen the outlook for global growthamid the weakening outlook for Europe and China. The greenback struggled to hold its ground following the worse-than-expected print, with EUR/USD climbing above the 1.2750 handle, but there was limited follow-through behind the market reaction as the pair closed at 1.2734.
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