TheNews

Trading the News: U.S. Durable Goods Orders

Another 1.0% contract in demand U.S. Durable Goods may dampen the appeal of the greenback and generate a near-term advance in EUR/USD as ongoing slack in the real economy raises the risk for a further delay in the Fed’s liftoff.

What’s Expected:

Why Is This Event Important:

Fears of a slower recovery may encourage a growing number of Fed officials to adopt a more dovish tone for monetary policy, and we may see the Federal Open Market Committee (FOMC) retain the zero-interest rate policy (ZIRP) throughout 2015 in order to mitigate the downside risks for growth and inflation.

Expectations: Bearish Argument/Scenario

Release	Expected	Actual
Housing Starts (MAY)	-4.0%	-11.1%
Industrial Production (MoM) (MAY)	0.2%	-0.2%
Factory Orders (APR)	-0.1%	-0.4%

The Fed may continue to trim the 2015 GDP forecast amid the mixed batch of data coming out of the U.S. economy, and another contraction in orders for large-ticket items may push the central bank to further delay the normalization cycle in an effort to encourage a stronger recovery.

Risk: Bullish Argument/Scenario

Release	Expected	Actual
Consumer Price Index Core (YoY) (MAY)	1.8%	1.7%
Advance Retail Sales (MoM) (MAY)	1.2%	1.2%
Average Hourly Earnings (YoY) (MAY)	2.2%	2.3%

On the other hand, discounted prices paired with the pickup in private-sector wages may foster greater demand for U.S. Durable Goods, and a positive development may keep the Fed on course to raise the benchmark interest rate later this year as the central bank remains confident in achieving its dual mandate for full-employment and price stability.

How To Trade This Event Risk

Bearish USD Trade: Orders Contract Another 1.0% or Greater

• Need to see green, five-minute candle following the release to consider a long trade on EURUSD
• If market reaction favors a bearish dollar trade, buy EURUSD 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

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

• Need red, five-minute candle to favor a short EURUSD trade
• Implement same setup as the bearish dollar trade, just in the opposite direction

Potential Price Targets For The Release
EURUSD Daily

• Long-term outlook for EUR/USD remains bearish amid the deviation in the policy outlook, but the single currency remains at risk for a relief bounce as European policy makers work to keep Greece within the monetary union.
• Interim Resistance: 1.1510 (61.8% expansion) to 1.1532 (February high)
• Interim Support: 1.0970 (38.2% expansion) to 1.1000 (50% retracement)

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)
APR 2015	05/26/2015 12:30 GMT	-0.5%	-0.5%	-22	-53

Orders for U.S. Durable Goods slipped 0.5% in April after expanding a revised 5.1% the month prior, while Non-Defense Capital Goods Orders excluding Aircrafts, a proxy for future business investments, increased 1.0% during the same period amid forecasts for a 0.3% expansion. A deeper look at the report showed demand for Transportation equipment slipped 0.3% during the month, with orders for electrical equipment falling 0.6%, while demand for machinery increased another 1.0% after climbing 0.1% in March. Despite the limited market reaction to mixed batch of data, the greenback gained ground throughout the North American trade, with EUR/USD slipping below the 1.0900 handle to end the day at 1.0869.


--- Written by David Song, Currency Analyst

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