A Disappointing U.S. Durable Goods Orders Report Could Add Further Weight Onto the Greenback and Lead Traders to Seek Safety

Durable goods orders in the world’s largest economy are forecasted to drop 1.0 percent in August after climbing 0.4 percent the month prior. These orders are expected to last more than three years, and reflect optimism in the economy. At the same time, the reading serves as an indicator regarding output to come. In this case, economists are forecasting that there was a lack of consumer confidence during the month of August.

I expect the headline reading to be driven mostly by the decrease in Boeing’s transportation components as the world’s second largest airplane maker reported weak sales in August. The company reported that it received merely 10 aircraft orders in August, which is down from 130 orders in July. Thus, traders should not overlook the breakdown of the report. Last month, capital goods excluding aircrafts fell at the fastest pace this year, plunging 8.0 percent. This is important in that investment spending prior to July was supportive of growth, with the spillover effects likely to impact the labor force. Therefore, a rise in this component is a step in the right direction. On the other hand, another contraction might suggest the company’s are scaling back on investment. Other sectors to keep a close eye on will be unfilled orders.

All in all, a decline greater than expected could fuel further growth concerns, and may lead lower yielding currencies (Swiss Franc, Japanese Yen, British Pound) to continue to rally against the trampled greenback. On the other hand, if figures surprise to the upside, I do not expect to see much of a reaction following the FOMC’s minutes as Fed hinted at QE, while the labor and housing market in the economy remains weak.