The U.S. dollar is likely to face increased selling pressures over the next 24 hours of trading as economists forecast demands for durable goods to contract another 2.5% in February as private-sector spending falters. The preliminary GDP reading for the fourth quarter showed that the annual rate of growth contracted the most since 1982, while personal consumption dropped 4.3% from the third quarter to mark the largest decline since 1980
Trading the News: US Durable Goods Orders
Time of release: 03/25/2009 12:30 GMT, 08:30 EST
Primary Pair Impact : EURUSD
Expected: -2.5%
Previous: -5.2%
January 2009 US Durable Goods Orders
| Demands for U.S. durable goods fell for the sixth consecutive month in January as orders plunged 5.2% after falling 4.6% in the previous month, and marked the worst slump since recordkeeping began in 1992. A deeper look at the report showed that orders for non-defense capital goods excluding aircrafts slipped another 5.4% after posting a 5.8% drop in the previous month, while demands for transportation equipments dove 13.5% during the month, and conditions are likely to get worse as households and businesses face a deepening economic downturn paired with tightening credit conditions. Nevertheless, as President Obama pledges to steer the economy out of the recession, the extraordinary efforts taken on by the Administration and the Federal Reserve should help to mitigate the downside risks for growth however, as trade conditions falter, fading demands from the global economy is likely to weigh on business spending. | |
December 2008 US Durable Goods Orders
| Business spending in the U.S. fell for the fifth month in December as durable goods orders slipped another 2.6% to mark its worst slump since 1992. The breakdown of the report showed that demands for capital goods fell 1.1% during the month after falling 3.2% in November, while orders for transport equipment rose 0.6% after falling 9.8% in the previous month. The data continues to reinforce a dour outlook for the world’s largest economy as private-demands falter, and as global trade conditions falter, economic activity throughout the region is likely to deteriorate further as firms continue to cutback on production and employment in an effort to reduce costs. Nevertheless, as signs of a deepening recession emerge, the Fed is likely to hold the benchmark interest rate at the record low for some time, and is may adopt unconventional measures over the coming months in order to simulate the ailing economy. | |
What To Look For Before The Release
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:
| Bullish Scenario:
If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on EURUSD ahead of the data release. | Bearish Scenario: |
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How To Trade This Event Risk
The U.S. dollar is likely to face increased selling pressures over the next 24 hours of trading as economists forecast demands for durable goods to contract another 2.5% in February as private-sector spending falters. The preliminary GDP reading for the fourth quarter showed that the annual rate of growth contracted the most since 1982, while personal consumption dropped 4.3% from the third quarter to mark the largest decline since 1980, and conditions are likely to get worse as households turn increasingly pessimistic towards the economy. A report by the Conference Board showed that consumer confidence fell to its lowest level since recordkeeping began in 1967, which foreshadows a weakening outlook for personal spending, and growth prospects for the world’s largest economy are likely to deteriorate throughout the first half of the year as the labor market weakens at a record pace. U.S. non-farm payrolls plunged another 651K in February following a 655K drop in the previous month, which marked the worst slump recordkeeping began in 1939, while the unemployment rate surged to a 26-year high of 8.1% from 7.6% in January, and the data continues to reinforce fears of a deepening recession as firms continue to cut back on production and employment in an effort to weather the economic downturn. Furthermore, industrial outputs in February slipped 11% from the previous year , which was the largest decline since 1975, while vehicle sales slipped to 9.1M during the same period, which is the lowest since 1981, and the outlook for growth and inflation remains bleak as households and businesses are expected to face the worst recession since 1946. Meanwhile, the Federal Reserve announced that it would expand its balance sheet up to $1.15T and would purchase nearly $300B in government debt after holding the benchmark interest rate at the record-low as credit conditions remain far from normal, and the unprecedented measures taken on by the board should certainly help to soften the landing of the economy however, as the World Bank forecasts a global recession for 2009, economic activity throughout the region is likely to weaken further as trade conditions deteriorate. Nevertheless, as risk trends continue to dictate price action in the currency market, a rise in risk appetite would certainly weigh on the U.S. dollar as investors increase their willingness to hold higher-yielding assets.
Trading the given event risk clearly favors a bearish forecast for the U.S. dollar as private demands falter however, an enhanced durable goods report would certainly set the stage for a bullish dollar trade following the release. Therefore, if orders falls less than expected (contracts 1.0% or less), we will look for a red, five-minute candle subsequent to the event to generate a sell entry on two lots of EURUSD, and once these conditions are met, we will place our initial stop at the nearby swing high (or reasonable distance taking volatility into account), and this risk will determine our first target. 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 an effort to preserve our profits.
Conversely, as households and businesses face a deepening recession, demands for durable goods are likely to fall further, and a dismal release would lead us to hold a bearish outlook for the greenback as economists forecast the world’s largest economy to face its worst economic downturn since 1946. As a result, an in-line print or a drop of more than 2.5% in orders would lead us to short the dollar, and we will follow the same strategy for a long euro-dollar trade as the short position mentioned above, just in reverse
