Demands for U.S. durable goods are expected to improve for the second month in August, with economists forecasting orders to increase 0.5% from the previous month, and a rebound in private-sector spending is likely to encourage an improved outlook for future growth as it accounts for more than two-thirds of the economy.
[U][B]Trading the News: US Durable Goods Orders[/B][/U]
[U][B]What’s Expected[/B][/U]
Time of release: [B]09/25/2009 12:30 GMT, 08:30 EST[/B]
Primary Pair Impact : [B]EURUSD[/B]
Expected: 0.5%
Previous: 4.9%
[U][B]Effects of US Durable Goods Orders has had on EURUSD for the past 2 months [/B][/U]
[U]July 2009 US Durable Goods Orders[/U]
U.S. durable goods orders jumped 4.9% in July to mark the biggest advance since July 2007, and the data foreshadows an improved outlook for private-sector spending as policy makers anticipate economic activity to improve throughout the second half of the year. The breakdown of the report showed shipments rose for the second consecutive month, with orders for capitals goods rising 9.5% from the previous month, while demands for transportation jumped 18.4%, led by a 107% rise in aircrafts. As global policy makers take unprecedented steps to stem the downside risks for growth and inflation, Fed Chairman Ben Bernanke sees the world economy emerging from the recession as trade conditions improves, and went onto say that “the prospects for a return to growth in the near term appears good” following the aggressive expansion in monetary and fiscal policy.
[U]June 2009 US Durable Goods Orders[/U]
Demands for U.S. durable goods plunged 2.5% in June, driven by a 39% drop in commercial aircrafts however, orders excluding transports unexpectedly rose 1.1% from the previous month, and the data encourages an improved outlook for future growth as policymakers take unprecedented steps to stimulate the ailing economy. A deeper look at the report showed stockpiles fell for the sixth consecutive month in June, while unfilled orders fell 0.9% from the previous month, and firms may increase production and investments throughout the second half of the year as demands improve. However, the downturn in the labor market paired with the rise in the personal savings rate foreshadows a weakening outlook for household spending, and the Fed is likely hold the benchmark interest rate at the record-low going into the following year to promote a sustainable recovery.
[B]What To Look For Before The Release[/B]
Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:
[B]How To Trade This Event Risk [/B]
Demands for U.S. durable goods are expected to improve for the second month in August, with economists forecasting orders to increase 0.5% from the previous month, and a rebound in private-sector spending is likely to encourage an improved outlook for future growth as it accounts for more than two-thirds of the economy. The preliminary GDP readingshowed economic activity slipped at an annual rate of 1.0% in the second quarter amid expectations for a 1.5% contraction, with personal consumption falling at a slower pace than initially expected, and the extraordinary efforts taken on by the government should continue to support the ailing economy as policy makers see the nation emerging from the worst recession since the post-war period. Meanwhile, a report by the Commerce Departmentshowed retail sales jumped 2.7% in August, with domestic vehicle sales rising to an annualized pace of 14.1M from 8.4M in July, and households and businesses may ramp up their willingness to spend as economic activity picks up. However, a report by the Federal Reserve showed consumer creditplunged at an annual rate of $21.6B in July to mark the biggest drop on record, while the Beige Book said household spending staying relatively “flat” during July and August as “credit standards remained tight” in most regions. Nevertheless, Fed Chairman Ben Bernankesaid that “the recession is very likely over” during a speech earlier this month, but held a caution tone as he expects unemployment to remain elevated as he sees a risk for a slower recovery. At the same time, President Barack Obama anticipates the economy “to start growing again” as financial conditions improve, but went onto say that the downturn in employment “could even get a little bit worse” in the coming months as prospects for a marked recover remains limited. As fears of a protracted recovery intensify, domestic demands may weaken over the coming months as households and businesses curb their temperament spending and increase their willingness to save but nevertheless, expectations for an economic recovery later this year are likely to encourage a rise in private consumption as growth prospects improve.
Trading the given event risk favors a bullish outlook for the reserve currency, and price action following the release could set the state for a short euro-dollar trade as the economic outlook for the US improves. Therefore, if demands for durable goods rise 0.5% or more during the month, we will look for a red, five-minute candle following the release to confirm a sell entry on two lots of EUR/USD. Once these conditions are met, we will set our initial stop at the nearby swing high, or a reasonable distance taking volatility into account, and this risk will establish our first objective. Our second target will be based on discretion, and we will move the stop on the second lot to breakeven once the first trade reaches its target in order to preserve our profits.
In contrast, fears of a protracted recovery paired with tightening credit conditions may lead households and businesses to scale back on spending, and an unexpected drop in durable goods orders are likely to drag on the exchange rate as investors weigh the prospects for a sustainable recovery. As a result, demands fall 0.2% or greater in August, we will favor a bearish outlook for the greenback, and will follow the same strategy for a long euro-dollar trade as the short position mentioned above, just in reverse.
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[I]To discuss this report contact David Song, Currency Analyst: <[email protected]>[/I]