Trading the News: U.S. Durable Goods Orders
What’s Expected:
Time of release: 06/27/2012 12:30 GMT, 8:30 EDT
Primary Pair Impact: EURUSD
Expected: 0.4%
Previous: 0.2%
DailyFX Forecast: 0.2% to 0.5%
Why Is This Event Important:
Orders for U.S. durable goods are projected to increase another 0.4% in May and rising demands for large-ticket items may prop up the dollar as it raises the outlook for growth. As the recovery gradually gathers pace, we should see the Federal Reserve refrain from another round of quantitative easing, and the central bank may become increasingly upbeat towards the economy as it gets on a more sustainable path.
Recent Economic Developments
The Upside
The Downside
The pickup in business outputs paired with the rebound in building activity may spur greater demands for U.S. durable goods, and a positive development may increase the appeal of the USD as it curbs expectations for more monetary easing. However, subdued wage growth paired with the stickiness in underlying inflation may continue to drag on private sector consumption, and a dismal print may renew speculation for QE3 as the FOMC keeps the door open to expand its balance sheet further.
Potential Price Targets For The Release
As the EURUSD maintains the downward trend carried over from the previous year, we will maintain a bearish outlook for the pair, and the euro-dollar may continue to give back the rebound from 1.2287 as it appears to be carving a lower top in June. In turn, the technical outlook points to fresh yearly lows for the EURUSD, and the bearish trend should continue to take shape in 2012 as long as the Fed abstains from increasing its balance sheet further. For a complete EURUSD technical outlook and scalp levels, refer to today’s Winners/Losers report.
Forecasts for a second consecutive rise in U.S. durable goods certainly casts a bullish outlook for the greenback, and a positive development may pave the way for a long dollar trade as it dampens expectations for more QE. Therefore, if demands increase 0.4% or greater in May, we will need a red, five-minute candle following the release to generate a sell entry on two-lots of EURUSD. Once these conditions are met, we will set the initial stop at the nearby swing high or a reasonable distance from the entry, and this risk will establish our first target. The second objective will be based on discretion, and we will move the stop on the second lot to cost once the first trade hits its mark in order to preserve our profits.
In contrast, slowing wage growth paired with the ongoing weakness in the real economy may drag on private sector consumption, and weaker demands for large-ticket items may spark a bearish reaction in the greenback as it fuels expectations for more QE. As a result, if the print falls short of market forecast, we will implement the same strategy as the short position laid out above, just in the opposite direction.
Impact that the U.S. Durable Goods Orders report has had on USD during the last month
April 2012 U.S. Durable Goods Orders
Demands for U.S. durable goods increased 0.2% in April after contracting 3.7% the month prior, while non-defense capital goods orders excluding aircrafts, which acts as a gauge for business investments, slipped another 1.9% during the same period. Indeed, the greenback struggled to hold its ground following the report, with the EURUSD climbing back above the 1.2600 figure, but we saw the dollar regain its footing during the North American trade as the pair ended the day at 1.2530.
--- Written by David Song, Currency Analyst
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong
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