EUR/USD pops as US durable goods orders point to a devastating recession

The EUR/USD pair rose today as traders reacted to weak US durable goods orders. These are the latest numbers to show the strain the US economy is in during the coronavirus pandemic. Investors also reacted to the deliberations in the European Union about forming a recovery fund.

US durable goods orders disappoint

Investors reacted swiftly to the weak durable goods orders numbers released by the Census Bureau. The numbers showed that durable goods orders declined by 14.4% to $213 billion in March after gaining by 1.2% in the previous month. This was the weakest number since 2014. According to Bloomberg, analysts were expecting the orders to fall by 11.9%.

The closely-followed core durable goods orders declined by 0.2 % in March after declining by 0.7% in the previous month. This weakness was better than the expected decline of 5.8%. The core durable number measures orders excluding transportation.

Meanwhile, durable goods orders excluding defence declined by 15.8% after declining by just 0.2% in the previous month. This decline was led by a decline in transportation equipment, which declined by 41%.

According to the bureau, unfulfilled orders for manufactured products fell by 2% in March while inventories of manufactured products rose by 0.6% to $437 billion. The statement said:

“Due to recent events surrounding COVID-19, many businesses are operating on a limited capacity or have ceased operations completely. The Census Bureau has monitored response and data quality and determined estimates in this release meet publication standards.”

The EUR/USD pair rose by 30 basis points in response to the data.

US economic data disappoints

The weak durable goods orders come at a time when the US is going through its worst financial crisis in decades. For example, more than 26 million people have lost their jobs in the past five weeks and manufacturing activity has tanked. Industrial production data declined to the lowest level in decades while retail sales have disappeared.

Also, companies in the United States are going through unprecedented challenges. For example, Boeing has lost hundreds of orders as global airlines suffer. Consequently, this has affected its suppliers including companies like General Electric (NYSE: GE) and Allied Aviation.

The housing sector, which supports millions of jobs, is also ailing. Numbers released yesterday showed that new home sales declined by 15% in March. A previous data showed that mortgage applications dropped by 0.3% while refinance continued to rise. Meanwhile, existing home sales dropped by more than 8.5% in March.

EUR/USD rises as EU leaders near a recovery fund deal

The EUR/USD also rose after it emerged that European Union leaders were inching close to a stabilisation fund. The leaders received support after Germany agreed on the need for raising money.

Still, there are still divisions about the size of the fund and how countries will receive it. The European Commission had proposed the deal to be about €2.2 trillion. However, according to Bloomberg, some influential members favour the deal to be less than that.

Countries are also divided on how countries should receive the funds. On the one hand, countries like France, Italy, and Spain have proposed the funds be given in form of grant. On the other hand, countries like Germany, Netherlands, and Austria are demanding the funds to be given in form of low-interest loans.

According to the Financial Times, the European Commission has now been tasked with coming up with a recovery fund. The commission will come up with the details, which will then be forwarded to the leaders. A document seen by the FT said:

“The unpredictability and the fallout of the health crisis furthermore calls for an even more flexible and agile budget, which is only possible through the mobilisation of special instruments.”

EUR/USD technical outlook

The hourly chart shows that the EUR/USD pair rose from an intraday low of 1.0725. As it did this, the price rose above the 23.6% Fibonacci retracement level of 1.0790. Also, the price has also moved above the 25-day and 50-day exponential moving average. Therefore, I expect the pair to attempt to retest the 38.2% retracement at 1.0827. It will then likely test the 50% retracement at 1.0860 if it moves above this.

On the other hand, it is also possible that the pair will attempt to retest the day’s low of 1.0727.