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US DOLLAR, DURABLE GOODS KEY POINTS:
- US Core Durable Goods Actual 0.7% Vs Forecast 0.2%.
- US Durable Goods Actual -4.5% Vs Forecast -4%.
- Durable Goods Orders Ex Transp MoM(JAN) Actual 0.7% Vs Forecast 0%.
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US durable goods data for January came in below expectations on a MoM basis, with a print of 0.6% (down in 2 of the last 3 months). The number was weighed down by a sharp decline in orders for transportation equipment 13.3%, namely orders for nondefense aircraft and parts (-54.6%).
Durable goods ex. transportation was 0.7%, beating Wall Street estimates by quite a distance. We also had declines in capital goods while orders for machinery, computer and electronic parts increased by 1.6% and 0.5% respectively. Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, increased 0.8%, reversing from a 0.3% fall in December.
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US DATA MOVING FORWARD
The US economy over the month of February has gone from strength to strength, defying expectations at every turn. Friday’s PCE data has stoked fears that inflationary pressures may be more stubborn than market participants had hoped. The month of February saw the Fed Funds peak rate expectations for 2023 rise from 4.8% to 5.4% with Federal Reserve policymakers keen to emphasize the need for further hikes in recent comments. Looking ahead it will be interesting to see what effect the recent batch of data has had on the Fed dot plots which will be released at its upcoming meeting on March 22.
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We might not have NFP jobs data to look forward to this week, but we do have ISM data which could be key. Given the positive data out during January which many attributed to the festive season and improved weather market participants will be keeping a close eye for a continued improvement. Given that the US is predominantly a service driven economy the ISM Non-Manufacturing PMI will be of particular importance with forecast sitting at 54.5 slightly down from last month’s 55.2 print. A better than expected showing here could likely set the tone and fuel optimism that March data will remain strong.
MARKET REACTION
Following the data release the dollar index declined from 105.10 to 104.95 with immediate support on the H1 chart resting at 104.88.
The dollar index has been on tear since printing its YTD low around the 100.80 mark reached on February 2. Looking at the bigger picture the index is mixed as we had such a bullish weekly and daily candle close this past Friday, yet the RSI is in overbought territory. Also, the fact that we have just posted our fourth week of gains (which we have not seen since October 2022) leads me to believe that we could be in for some form of retracement for the rest of the week.
Dollar Index H1 Chart- February 27, 2023
Source: TradingView, prepared by Zain Vawda
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— Written by Zain Vawda for DailyFX.com
Contact and follow Zain on Twitter: @zvawda
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