Durable goods orders are expected to have fallen 1.5% in April with the stripped down ex transportation number slipping 0.5% as well. The expectations are that the pace of consumer spending in the U.S. has slowed considerably and will weigh on demand going forward. The slumping U.S. housing market saw prices fall the most ever recorded, with the S&P Case-Shiller Composite 20 index reporting a 14.45% decline in March. Expectations are that prices will continue to fall as banks continue to tighten their lending standards leading to many buyers waiting to purchase a home. The housing slump and rising inflation on the back of oil prices reaching over $135 a barrel has lead to U.S. consumer confidence falling to 57.2-the lowest in 15 years. Americans are expected to rein in their demand which will offset the recent rise in foreign orders due to the weak dollar, as last month saw durable goods ex transportation jump 1.5%. However, the U.S. slowdown and rising prices continue to weigh on the global economy which will affect demand going forward which would eliminate the sole source of growth for U.S manufacturers. The New York, Philadelphia and Richmond regional manufacturing indices all showed declines in new orders, which may set up the durable goods release for a bigger than expected decline. MBA Mortgage applications will cross the wires simultaneously and may provide some noise as the housing sector has come into focus with prices continuing to free fall.

It is virtually a foregone conclusion that the Fed will keep rates on hold at the June 25th meeting with traders pricing in a 92% certainty in the Fed Fund futures. Indeed, inflation has become such a concern that the expectations that the FOMC will raise rates by the September meeting have risen to 26%. If U.S. fundamental data can provide some hope that the economy can avoid a recession, dollar bulls may look to grab momentum back. The U.S. durable goods report is a good measure of future economic activity as it measures the purchases of long lasting goods. Therefore, a gain in the headline number and continued growth in the ex transportation read will be enough to trigger a dollar bullish trade. With a confirmed, positive fundamental release we will look for a five-minute red candle to confirm entry on two lots of EURUSD. Our initial stop will be set at the nearby swing low (or reasonable distance) and this risk will determine our first target. Our second target will be based on discretion (with a mind to major resistance in the vicinity) and to preserve profit we will move the stop on the second lot to break even when the first half of the trade reaches its target.

Conversely, the expected decline will combined with the recent dour housing and consumer sentiment data will reignite recession fears, which will feed current dollar bearish momentum. We will follow the same strategy for a short as the long above, just in reverse.

David Rodriguez is a Currency Analyst at FXCM.