US Dollar May Finally Break From Ranges On Friday's US Economic Data

AUG 24
Durable Goods Orders (JUL) (08:30 EST; 12:30 GMT)
New Home Sales (MoM) (JUL) (10:00 EST; 14:00 GMT)

Expected: 1.0%
Expected: -1.7%

Previous: 1.3%
Previous: -6.6%


Originally Published: 08-22-07
Updated: 08-23-07


How Will The Markets React?
The US economic calendar has been remarkably thin this week, leaving the fixed income, forex, and equity markets to trade off of news (or the lack of it) regarding the liquidity crunch. However, things could change on Friday when durable goods orders and new home sales will both be released. Durable goods will hit the wires first, and the figure is anticipated to show that manufacturers continue to ramp up output after working off excess inventories built up late last year. Growth in industrial production, fueled by rising exports and increased business spending, may be one of the only major drivers of overall expansion in the economy during the second half of the year. However, the most recent leading indicators report showed that orders for non-defense capital goods fell back, boding ill for Friday’s durable goods report and business investment as a whole. Later in the morning, new home sales are anticipated to drop 1.7 percent from June to a 10-year low of 820,000 units. Dour news for the housing sector isn?t likely to come as a surprise to anyone, but if investor sentiment takes a hit on Friday morning (more subprime-related job losses, very disappointing durable goods orders, etc), the housing data may only contribute to that pessimism. Finally, traders should watch out for speeches by the Federal Reserve?s Fisher, Lockhart, and Poole at 14:45 EST, as any commentary regarding recent financial market conditions or inflation will not be ignored.
Bonds - 10-Year Treasury Note Futures
The turn lower in equities during the morning helped 10-year Treasury note future recoup early losses, but nevertheless, the contracts ended the day down a nudge. Swing point resistance on Friday is at 108-25, as the recent highs at 109-095 will likely be the high for the near term, as this also marks March?s high (109-09). However, all of this is contingent upon risk aversion throughout the markets. Friday?s US economic data may not create much volatility for bonds, unless a jump in durable goods is strong enough to lead traders to stop pricing in rate cuts for the September 18th FOMC meeting. Such a move could push Treasuries towards the 108-00 level.
10-Year Treasury Note Futures (Daily Chart)

Following recent consolidations of EUR/USD over the past week, the pair finally broke higher to test the 50% fib of 1.3816 - 1.3359 at 1.3587 on Thursday as dollar weakness pervaded the market… Looking at Friday?s event risk, a strong durable goods orders report could reignite the greenback and take EUR/USD down for a test of support at 1.3460/70. On the other hand, a disappointing durable goods figure could propel the pair through Fibonacci resistance to take on 1.3640, as new home sales may only exacerbate any negative sentiment on the US dollar. All of this price action may only occur during a short time frame, however, as the overarching theme of the US markets remains on the liquidity crunch and risk aversion. While the focus on these issues appears to have died down somewhat, they are highly unlikely to fade. As a result, a return to volatile conditions should work in favor of the greenback in coming weeks.
[B]EUR/USD (Intraday Chart)

Equities - Dow Jones Industrial Average
The Dow Jones Industrial Average ended the day almost completely flat, closing down a miniscule 0.25 at 13,235.88. Given the Dow?s bounce from support at the 200 SMA, price could be targeting the 61.8% retracement level of the decline from 14,021.95 at 13,441.00, but will first run into resistance at a descending trendline at 13,390. Furthermore, while US equities face event risk from Friday?s economic data scheduled to be released, price action in the Dow will likely remain contingent upon volatility and risk aversion trends related to concerns about the liquidity crunch. Nevertheless, a solid durable goods report could help ignite a bid tone for US equities on Friday morning, as the data would provide some hope that the US economy can weather the storm with the help of business investment. On the other hand, a disappointing reading combined with a round of weak new home sales later in the morning could quell market optimism, especially if traders become increasingly worried about companies directly involved with the housing sector.
[B]Dow Jones Industrial Average (Daily Chart)


Written by Terri Belkas, Currency Analyst of