US Dollar Up on Rebound In Durable Goods Orders

US Dollar Up on Rebound In Durable Goods Orders
November 28, 2019

 

The US dollar rallied against the yen yesterday after a series of positive economic data was released from the US. The yen’s decline was also aided by risk on sentiment in the market caused by expectations of progress in trade talks between the US and China. From a low of 109.03, the USD/JPY pair rose to a high of 109.59 in the past 24 hours.

According to the US Commerce Department, durable goods orders grew 0.6% m-o-m in October, versus economists’ anticipations for 0.5% contraction. The uptick in durable goods orders was mainly led by defense-related goods such as ships and fighter jets. However, orders for motor vehicle parts declined sharply. In September, durable goods orders contracted by 1.2%.

Excluding orders for transportation equipment, core durable goods orders increased 0.6% m-o-m in October, versus economists’ expectation for 0.2% growth. In the previous month, core durable goods orders contracted by 0.4%.

Michael Pearce, a Senior U.S. Economist at Capital Economics, explained the reason behind the increase in durable goods orders. Pearce said, “The rise in durable goods orders last month was driven by a surge in orders for underlying capital goods, suggesting that business equipment investment is holding up better than anticipated.”

Updated data published by the Commerce Department indicated that the US economy expanded by more than initially anticipated in Q3 2019. The Commerce Department stated that real GDP soared by 2.1% in third-quarter, compared to the earlier predicted 1.9% growth. Economists had anticipated the GDP growth rate to remain unchanged.  The third-quarter GDP growth was led by impressive consumer spending, residential investment, government spending, exports, private inventory investment, and state government spending. Non-residential fixed investment and an increase in imports had a negative impact on GDP growth.

Pearce now expects an only modest slowdown in economic growth in the short-term. He said, “Overall, we’re still expecting economic growth to slow further in the near-term, but that slowdown appears to be more modest than we had initially expected.”

The US Labor Department reported a decline in the first-time jobless claims in the week ended November 23rd. The US unemployment benefit claims fell to 213,000, down 15,000 from the earlier week’s revised level of 228,000. Economists had anticipated jobless claims to decline to 221,000, from the 227,000 originally reported for the earlier week. Notably, the upwardly revised number of unemployment benefits claims last week was the highest since the week ended June 22nd.

In the case of Japan, economic data published last week indicated that exports had declined 9.2% in October. It was mainly due to a drop in demand from China and the US.

To boost economic growth, the Bank of Japan may opt for an ultra-easy monetary policy. The Bank of Japan’s governor Haruhiko Kuroda signaled further rate cut last week.

Kuroda said, “There is plenty of scope to deepen negative rates from the current minus 0.1 percent.”

Finally, the increasing optimism for progress in trade talks between the world’s top two economies has increased risk appetite among investors. Therefore, traders are unwinding their long positions in the Japanese yen, which is considered a safe-haven currency. The positive economic data from the US and increasing risk appetite among investors is expected to keep the USD/JPY pair bullish in the short-term.

Technically, the USD/JPY pair has bounced off the support at 105.40. The next resistance is anticipated only at 112. Furthermore, the stochastic oscillator is in the bullish zone. Therefore, we are expecting the currency pair to move up in the short-term.

USD - technical analysis - 28th Nov 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Ian Maguire

Ian Maguire

Ian is our resident contributor to the latest going ons in the cryptomarket, keeping up to date with the latest icos and coins


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