The release of US Durable Goods Orders and Initial/Continuing Jobless Claims at 08:30 ET proved to be highly disappointing today, leading the US dollar to initially spike higher on demand for safe-haven assets.
Taking a look at the data, Durable Goods Orders failed to improve for the sixth straight month as they fell more than expected at a rate of 5.2 percent during January. Transportation led the decline in the overall index, contracting a whopping 13.5 percent, but even excluding this component orders were down 2.5 percent. Furthermore, by looking at the results from a longer-term perspective, conditions appear incredibly bleak as Durable Goods Orders are down 26.4 percent from a year earlier while non-defense capital goods orders excluding aircraft – a gauge of business investment – tumbled 5.4 percent during the month and 20.2 percent from a year ago. All told, the declines suggest that the US economy is suffering at the hands of waning demand on both the consumer and business level.
Meanwhile, Initial Jobless Claims rose by 36,000, or 5.7 percent, during the week ending February 21 to a more than 26-year high of 667,000. Perhaps even worse, Continuing Jobless Claims increased by 114,000, or 2.3 percent, to 5,112,000, the highest level since recordkeeping began in 1967. The sharp deterioration in the labor markets has only accelerated more in recent months, indicating that the unemployment rate is very likely to reach the Federal Reserve’s expected levels for 2009 sooner rather than later (see chart below). Furthermore, as long as unemployment levels are climbing, purchases of services, homes, and any other non-essential goods are sure to lag as discretionary income contracts.
US Initial Jobless Claims (White), Continuing Jobless Claims (Green), Unemployment Rate (Blue)
Source: Bloomberg
The outlook for the US dollar hinges upon two things right now: risk trends and where the DXY index goes from here. The greenback tends to benefit from a deterioration in investor sentiment, as evidenced by declines in equities, while typically declining when sentiment is strong and risky assets rally. Meanwhile, the DXY index is trading at a critical point as price consolidates within an ascending triangle. These are typically bullish continuation patterns, but price would first need to break above the 2008 highs to confirm such a bias. However, if price dips below rising trendline support, the outlook for the US dollar could turn decidedly bearish as the currency would likely correct lower versus most of the majors.
DXY Index (Daily Chart)
Source: Bloomberg
