[B]Trading the News: U.S. Durable Goods Orders[/B]
[B][U]What is Expected
[/U][/B]Time of release: [B]08/24/2007 12:30 GMT, 08:30 EST[/B]
Primary Pair Impact : [B]EUR/USD[/B]
Expected: [B] 1.0%
[/B]Previous: 1.3%
[B]How To Trade This Event Risk[/B]
The Durable Goods Orders report has been a spotty performing over the past three months. In the past there has been a notable lack of price action on the headline number alone, or else a reaction was isolated to a short move with little to no follow through. To properly prepare for this report, a few conditions should be set out ahead of time to avoid a fundamental trade that sputters. First of all, a trade should be based on both the headline and ex. transport measurements of the indicator. As with the case in April, a surprise in one facet of the report could lead to a quick move out of the gates; but a conflicting signal could quickly erode the economic potency of the overall report and force a retracement. Therefore, look for at least numbers in a consistent direction - though equal measures of surprise between both would likely improve the success of the trade. Another factor to keep in mind is the new home sales report due at 14:00 GMT which could change the current in the market. Finally, with the approach of the weekend, a lacking fundamental surprise could lead traders to ignore the data in favor of going back into risk trades and squaring their books for the weekend.
Trading a positive surprise would go against the prevailing trend in EURUSD up until Thursday morning, and that should be taken into account when placing stops and targets. Depending on the extent of the surprise (and considering consistency between the measurements), a stop should be placed with a mind towards overnight volatility and nearby swing highs. In the April and May announcements this meant a 25 point stop loss. At the same time, when a short trade is initiated it should be done in two lots with equal stop limits, as usual. The first lot?s target should equal the amount of risk taken and the stop on the second half of the trade should be moved up to break even when the first half books profit. A second objective should be discretionary; though in the past, follow through was lacking heading into the weekend and a distant target was usual not obtainable before the position actually closed at break even.
A disappointing report from Friday?s orders report would follow the market?s current path. The reaction to the report can obviously come in varying degrees; however, a drop in both measurements of the demand report would work the best for a fundamental trade. The same rules apply to the long trade that have been laid out for the short-side trade.
