The feel good sentiment currently permeating the markets may get another boost as U.S. durable goods orders are expected to rebound 0.8% in February from -5.3% the month prior. The Fed’s recent rash of measures to infuse liquidity into the market place and loosen up sticky lending rates has traders feeling that the worse may be over. The central banks quick action in bailing out Bear Stearns and J.P. Morgan’s recent sweetening of the deal for the beleaguered financial institution has boosted investor confidence.

March 25 US Durable Goods Orders (FEB) (13:30 GMT; 09:30 EST)
Expected: 0.8%
Previous: -5.3%

What Are The Markets Facing?

The feel good sentiment currently permeating the markets may get another boost as U.S. durable goods orders are expected to rebound 0.8% in February from -5.3% the month prior. The Fed’s recent rash of measures to infuse liquidity into the market place and loosen up sticky lending rates has traders feeling that the worse may be over. The central banks quick action in bailing out Bear Stearns and J.P. Morgan’s recent sweetening of the deal for the beleaguered financial institution has boosted investor confidence. Nevertheless, the economy is far from the clear, a softening labor market and declining manufacturing sector will give investors plenty to worry about going forward. The euphoria over the durable goods print may be short lived once a closer examination of the numbers takes place. The majority of the gain is expected to come from an increase commercial airline orders. Overall orders minus the volatile transportation sector are expected to decrease by 0.3% verifying the overall weakness. Recent regional gauges have shown the weakening climate as the New York March measure was an all time low and Philadelphia’s printed negative for the fourth straight month. Therefore, a consecutive decline in durable goods orders is not a stretch and would put a damper on current optimism, especially after the recent five year low in consumer confidence.

Bonds – 10-Year Treasury Note Futures

Treasuries are breaking down as risk appetite returns to the market on the back of recent Fed actions. The contract recently broke through the 20 Day –SMA and is starting to test the next technical support level of 117.15/20. The expected rebound in durable goods orders will only further wet the appetite if investors and weigh on the 10-year note. However, if recent regional gauges are any indication a lower than expected print may be in store and it will bring risk aversion with it.

FX – EUR/USD

The EUR/USD bounced off of technical resistance levels putting an end to the recent dollar rally. Greenback bulls were out in full force on the heels of the Fed’s bailout of Bear Stearns and a smaller than expected 75 point rate cut. After the pair briefly broke through the 20 Day –SMA, which it hadn’t seen in a month, a brief test of the 38.2% Fibo level of 1.4427-1.5899 was all that was needed to reverse momentum in favor of Euro bulls. Current sentiment may run out of steam as ECB Vice-President Lucas Papedmos has recently reaffirmed the Central Bank’s focus on the FX markets and the recent volatility of the EUR/USD. This will only increase speculation of a coordinated central bank intervention, which has been a source of dollar support. The expected improved upcoming durable goods orders report may provide dollar support, as traders will take it as assign that business confidence is returning and future growth may be forthcoming. However, another decline will bring back recession fears, especially after the recent five year low in U.S. consumer confidence, and may push the pair back towards all time highs.

Equities – Dow Jones Industrial Average

The Dow Jones Industrial Average is coming off a two day 450 point rally, as recent Fed actions have brought back a sense of stability and expectations that the market may have already made a bottom. The Fed’s recent run of rate cuts is starting to make stock valuations more attractive and as bargain hunters enter the market to take advantage; recent downtrodden sectors have garnered attention. The index hasn’t been able to break through the 12765 price level since its big sell off in January and is approaching the resistance level for a third time. It may take more than a stronger than expected Durable Goods Orders print to push equities through resistance, after the recent consumer confidence number. Although, a positive ex transportation measurement may get investors feeling good about future prospects and give the index the needed momentum. If the gauge of long lasting goods continues to show business manager’s reluctance to spend, traders may resume pricing in a recession and send stocks back towards recent lows.

Terri Belkas is a Currency Strategist at FXCM.