TRADING THE US DURABLE GOODS ORDERS RELEASE WITH EUR/USD

Published : 11 years ago, on 27/03/2014

(March 26, 2014)

The US economy is set to print its durable goods orders data for the month of February in today’s New York trading session. The headline figure is projected to show a 1.1% increase while the core version of the report is estimated to show a mere 0.3% uptick.

Recall that the US economy printed mixed results for the durable goods orders report in the previous month. The headline figure showed a 1.0% decline instead of the estimated 0.7% dip while the core figure had a stronger than expected 1.1% rise. Taking a look at EUR/USD’s reaction when the report was released in February 24 shows that the dollar gave up a lot of ground then, as traders speculated that the FOMC might pause with its taper plans.

However, the latest FOMC statement turned out to be hawkish as the central bank carried on with its $10 billion monthly taper while Yellen hinted that a rate hike might take place around six months after stimulus ends. With that, the US dollar is drawing support from strong fundamentals lately.

In line with this, higher than expected gains in durable goods orders could provide a strong boost for the dollar, as it would support Fed officials’ positive outlook for the economy. On the other hand, lower than expected results might force the dollar to return some of its gains to the euro. Bear in mind though that EUR/USD is under selling pressure since a few ECB officials have brought up the idea of implementing negative deposit rates once more. After all, the euro zone could benefit from a weaker euro and might need a boost in price levels to prevent deflation from taking hold.

In addition, given the divergence in monetary policy biases of the Fed and the ECB, the reaction of EUR/USD might be sustained if the durable goods orders release confirms a recovery in the US economy.

Prepared by Aayush Jindal, Chief Technical Strategist at Capital Trust Markets

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