US durable goods orders: Will it move markets?

The second estimate of the US Q3 GDP released today turned out to be non‐event for the markets as expected, since the actual figure of 2.1% matched estimates. The report was pretty much dull, with just one key takeaway – consumption dropped to 3%.

Durable goods orders seen rebounding

The durable goods orders figure for October is seen rebounding from the low of 1.5% from September’s 1.2% drop. The durable goods ex transportation is seen rising 0.3% in October, compared to the 0.4% drop seen in September.

The corporate spending represented by the durable goods report stayed anaemic over the last one year. Even the talk of a rate hike has not had any major positive impact on the corporate spending (businesses/households prepone spending in anticipation of higher rates in the future). This may be an indication of weak activity or because corporate see Fed tightening policy in a small baby steps as opposed to conventional 25 bps rate hike.

However, the Fed’s rate hike decision is mainly centred around the labor market, which as per Fed is well near full employment levels. Hence, a weaker durable goods report could only lead to a technical correction in the USD index.

On similar lines, the personal spending and personal consumption numbers due for release tomorrow may attract little attention if they are in line with the estimates. A weaker figure could lead to minor technical correction, while a surprisingly strong number is likely to result in USD strength.

Personal spending is seen rising 0.3% in Oct from Sep’s 0.1%, while personal income is seen rising 0.4% from 0.1%.

Given the strong expectations of liftoff in December, the drop in demand for the USD is relatively less in the face of a weaker data, while a strong data could see the demand for the USD pick up fast as it would mean the economy is ready for a 25bps rate hike. Moreover, a weak data keeps liftoff bets intact, but the likelihood of a move much slower than 25bps increases, therefore making way for a technical correction in the USD.

EUR/USD Daily Chart ‐ Scope for correction

• The EUR/USD pair found support in the risk aversion today and may continue to remain upbeat tomorrow in case the European markets extend today’s weakness.

• The technical story points to a correction to 1.075‐1.0811 (23.6% of 1.1496‐1.0600) as the lower lows on price chart is accompanied by higher lows on the RSI.

• The pair also formed a Dragonfly Doji on the daily charts after hitting six month low yesterday, which is an indication the bears may be exhausted and await technical correction before driving the pair to fresh multi‐month lows.

• The prospects of a move to 1.075‐1.0811 are high, so long as the pair sustains above 1.0590 and the US data – durable goods and personal spending – are weak/or in‐line with the estimates.

GBP/USD Daily Chart – Eyes set on 1.50‐1.4980

• As expected, the GBP/USD pair fell to a low of 1.5087 (61.8% of Apr‐Jun rally). Only a horribly weak US economic data tomorrow could act as a saving grace for the pair.

• Sterling’s inverted head and shoulder failure in June, followed by a lower highs formation – latest at 1.5335 – indicates the currency is likely to extend the drop to falling channel support around 1.50‐1.4980.

• However, the currency pair is oversold on the hourly and 4‐hour RSI. Sterling could recover to 1.5120 ahead of the US data tomorrow.

• A horribly weak US data could open doors for a re‐test of 1.5163 (Sep 4 low) and 1.52 handle.

• Overall, the pair looks weak with a high probability of a drop to 1.50‐1.4980 levels in the shortterm.