Durable Goods Orders (SEP) (12:30 GMT; 08:30 ET)
Expected: 1.5%
Previous: -4.9%

New Home Sales (SEP) (14:00 GMT; 10:00 ET)
Previous: 795K
Expected: 770K

How Will The Markets React?

Economic data out of the US will likely proved to be mixed on Thursday, as Durable Goods Orders are anticipated to improve while New Home Sales are expected to fall to the lowest level since May 1997. The headline durable goods reading is likely to be buoyed by the transportation component, as Boeing reported that orders picked up to 132 in September from 75 during the month prior. Meanwhile, the most recent leading indicators report showed that orders for non-defense capital goods improved in September, boding well for the durable goods report and business investment as a whole. On the other hand, the new home sales index is predicted to plummet 3.1 percent to 770K. The news will come on the tails of the worse-than-expected NAR existing home sales figure that was released on Wednesday, and the results will likely be similar. The pace of sales probably declined further, especially as tighter lending standards and higher mortgage rates make it more difficult to get financing. Furthermore, excess supplies and waning demand will likely drive prices lower as well. Nevertheless, dismal news from the housing sector will not be entirely surprising to the markets and as a result, traders may focus more on the Durable Goods Orders release, especially if the actual reading misses expectations.

Bonds – 10-Year Treasury Note Futures

The new 2007 high reached in Treasury note futures today reaffirms the bullish trend. The rally since the October 15 low has been very direct and creates the potential for further gains to target the 111-20 level, especially if Thursday’s US data proves to be disappointing. On the other hand, strong gains in the Dow and S&P or a surge in durable goods orders could weigh Treasuries down.

FX – EUR/USD

The EUR/USD pair has made a solid comeback since plummeting from a record high of 1.4348 down to support at the 1.4140 level, as traders remain broadly bearish on the greenback. The release of new home sales on Thursday may only exacerbate that sentiment, as the index is anticipated to have dropped to a decade low. While new home sales only compose about 15 percent of the housing market, the figure serves as a timelier barometer for the sector since the index is based on contract signings rather than closings. While some resistance looms above at 1.4265 (the 61.8 percent retracement level of the decline from 1.4348 – 1.4125), EUR/USD could be primed to take on 1.4300 once again. On the other hand, traders are well aware of the dour status of the housing sector, leaving them more likely to pay heed to the durable goods orders figure. If orders improve in line with or more than expected, EUR/USD could pull back down towards the 1.4200 level regardless of how the new home sales figure fares.

Equities – Dow Jones Industrial Average

The Dow Jones Industrial Average staged another end-of-the-day rally on Wednesday after trading broadly lower throughout most of the afternoon. Indeed, rumors that the Federal Reserve would move to cut rates before the October 31 policy meeting helped boost the index, and with Fed fund futures pricing in a 86 percent chance of a 25 basis point cut and a 14 percent chance of a 50 basis point cut, the Dow could continue to climb towards Fibonacci resistance at 13,803 (50 percent retracement level) and 13,896 (61.8 percent retracement level). However, the release of new home sales or durable goods orders on Thursday could crimp gains, especially if the data proves to be more disappointing than expected. With the woes of the housing sector persisting as homeowners default on their mortgages or have their properties foreclosed on, it is clear that the credit market mess as not been cleaned up quite yet. Nevertheless, the markets are already well aware of the status of housing, so improvements in durable goods orders may carry more weight with traders and help provide a bid tone in the Dow.

Terri Belkas is a Currency Strategist at FXCM.