U.S. durable goods orders are forecasted to have fallen by another 2.5% in January after the 3.0% decline the month prior. The deepening recession has caused consumers to put off purchases of long lasting items. Americans are no longer able to pull money out of their homes to buy bigger ticket items as Home prices in December realized an annualized drop of 18.5%.
Fundamental Outlook
U.S. durable goods orders are forecasted to have fallen by another 2.5% in January after the 3.0% decline the month prior. The deepening recession has caused consumers to put off purchases of long lasting items. Americans are no longer able to pull money out of their homes to buy bigger ticket items as Home prices in December realized an annualized drop of 18.5%. Existing home sales unexpectedly fell 5.3% in January demonstrating the consumer’s willingness to wait for lower prices. Therefore, we could see a steeper than expected drop in demand which could conflict with the bearish dollar technical outlook. If the greenback holds its inverse correlation to risk, then a fall in orders could lead to dollar support. However, traditionally the weak fundamental data has led to dollar weakness and although I see that correlation returning, current trends dictate otherwise. A small case could be made for a better than expected result as last month saw orders ex-defense improve from -4.3% to -0.63%, showing that broader demand improved which could have continued with the expectations of the fiscal stimulus plan passing.
Technical Outlook
The break from the triangle and decline to 1.25 is viewed as wave 5 within the 5 wave decline from 1.47. A corrective advance over the next month (at least) is expected. Initial resistance is not until 1.33 (former chart resistance and 38.2% of decline from 1.4723). There is risk of a drop below 1.2660 before the larger rally. In this instance, there would be a high reward/risk long opportunity. Even at current price, the ratio is skewed in favor of bulls.
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To discuss this report contact John Rivera, Currency Analyst: jrivera@fxcm.com
