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Forex pairs in this Article » EUR/USD
Trading the News: U.S. Durable Goods Orders

What’s Expected:

Time of release: 06/25/2013 12:30 GMT, 8:30 EDT

Primary Pair Impact: EURUSD

Expected: 3.0%

Previous: 3.3%

DailyFX Forecast: 3.0% to 3.5%

Why Is This Event Important:

Demands for U.S. Durable Goods are expected to increase another 3.0% in May and the resilience in private-sector consumption may prop up the dollar as it raises the Fed’s scope to taper its asset-purchase program. As the FOMC appears to be slowly moving away from its easing cycle, the shift in the policy outlook may heighten the bullish sentiment surrounding the greenback, and the reserve currency may outperform in the second-half of the year as the central bank looks to change course.

Recent Economic Developments

The Upside

Release

Expected

Actual

Advance Retail Sales (APR)

0.4%

0.6%

Change in Non-Farm Payrolls (APR)

163K

175K

Consumer Confidence (MAY)

71.2

76.2

The Downside

Release

Expected

Actual

Consumer Credit (APR)

$12.900B

$11.058B

Average Hourly Earnings (YoY) (MAY)

2.1%

2.0%

Personal Income (APR)

0.1%

0.0%

The rise in consumer confidence along with the ongoing improvement in the labor market may encourage greater demands for large-ticket items, and the resilience in private sector consumption may prompt the FOMC to dial back its quantitative easing program as the outlook for growth improves. However, subdued waged growth paired with the slowdown in private lending may drag on spending, and a dismal development may dampen the appeal of the USD as the central bank continues to highlight the persistent slack in the real economy.

Potential Price Targets For The Release

Forex_EURUSD-_Trading_the_U.S._Durable_Goods_Orders_Report_body_ScreenShot278.png, EUR/USD- Trading the U.S. Durable Goods Orders ReportThe head-and-shoulders formation in the EURUSD should continue to take shape as it carves out a lower top in May, and the pair looks poised for a move back towards the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50 as the fundamental outlook for the U.S. economy improves. However, a dismal durable goods report may spark another test of the 38.2% retracement (1.3120), and we may see the bearish pattern fail to pan out should the developments coming out of the U.S. renew bets for additional monetary support.

How To Trade This Event Risk

As private sector consumption remains one of the leading drives of growth, a positive development may pave the way for a long U.S. dollar trade as it dampens the Fed’s scope to expand its asset-purchase program. Therefore, if orders increase 3.0% or greater in May, we will need to see a red, five-minute candle following the release to generate a sell entry on two-lots of EURUSD. Once these conditions are fulfilled, 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 breakeven once the first trade hits its mark in an effort to preserve our profits.

On the other hand, orders for U.S. durable goods may taper off amid the ongoing slack in the real economy, and a dismal print may drag on the greenback as the data fuels bets for more QE. As a result, if the report falls short of market expectations, we will implement the same setup for a long euro-dollar trade as the short position mentioned above, just in the opposite direction.

Impact that the U.S. Durable Goods Orders report has had on USD during the last month

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

APR 2013

05/24/2013 12:30 GMT

1.5%

3.3%

0

-5

April 2013 U.S. Durable Goods Orders

Forex_EURUSD-_Trading_the_U.S._Durable_Goods_Orders_Report_body_ScreenShot086.png, EUR/USD- Trading the U.S. Durable Goods Orders ReportOrders for U.S. durable goods increased 3.3% in April following a revised 5.9% contraction the month prior, while demands for non-defense capital goods excluding aircrafts, a proxy for business investments, climbed 1.2% amid forecasts for a 0.5% print. Indeed, the bullish dollar reaction was short-lived as the EURUSD moved back above the 1.2950 figure, but we saw the greenback firm up during the North American trade as the pair ended the day at 1.2933.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com.

Follow me on Twitter at @DavidJSong

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