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US durable goods orders due, as dollar rally eases

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The next focal point for the dollar will be the release of durable goods orders for January, on Wednesday at 12:30 GMT. Forecasts point to a relatively soft set of data, which may further amplify concerns around a looming US slowdown, and by extent cause the greenback to give back more of its recent gains. In the bigger picture, the US currency will likely take its cue from the signals the Fed sends at its policy meeting next week.

New orders for durable goods in the US are expected to have declined by 0.5% on a monthly basis in January, after rising by 1.2% in December. Excluding transportation equipment, ‘core’ orders are projected to have risen by a marginal 0.1%, the same pace as previously. Perhaps the most important measure to watch though will be ordered for non-defense capital goods excluding aircraft, which is viewed as a proxy for business spending and investment. That metric is also forecast to have ticked up by 0.1%, after falling by 1.0% in December.

If the actual prints meet the projections, that would signal that the softness in business spending seen in late 2018 has carried over into 2019, spelling bad news for economic growth. Expectations for US growth in Q1 are already extremely subdued, with the Atlanta Fed GDPNow model pointing to an anemic 0.2% annualised expansion.

Against this backdrop, a weak set of durable goods could exacerbate worries that the US economy barely grew at the start of 2019, or even contracted, weighing on the dollar. Looking at USD/JPY technically, immediate support to declines may be found near 110.75, the March 8 low, before the 110.0 handle attracts attention.

On the flipside, if capital goods orders beat expectations – allaying concerns around a slowdown – then the US currency could come under renewed buying interest. Resistance to advances in USD/JPY may come at 112.10, which capped the gains on March 5, with an upside break opening the door for a test of the 114.0 level.

Besides durable goods, the US producer price index (PPI) for February will also be released but considering that the consumer price index (CPI) for that month is already out, the PPI is unlikely to attract much attention.

Finally, perhaps the most significant driver for the dollar’s near-term direction will be what the Fed signals when it gathers next week. Specifically, will policymakers keep a rate increase in 2019 on the table in their latest ‘dot plot’, or will they shift to indicating no rate hikes at all? Market pricing currently implies a small probability for rate cuts this year, not rate hikes, so even the faintest hint of a future rate increase could come as a ‘hawkish’ surprise for traders, putting the wind back into the dollar’s sails.


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This information is not considered as investment advice or investment recommendation but instead a marketing communication. This material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.

Source: XM

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