Durable Goods Slows From Initial Recovery

The latest economic data from the US has done little to offer much encouragement over the health of the recovery there. Durable goods orders for last month were seen rising by 7.3%, following the 15.7% rise noted in May. While the reading was above the expected 7% number forecast, it reflects a significant loss of momentum following the initial reopening of the US economy. The core number came in below expectations at 3.3% vs 3.5% expected and marked a 0.4% contraction from the prior month’s 3.7% reading, further highlighting the loss of momentum seen against the initial recovery.

The increase in the headline data, reported by the US Commerce Department, was linked to pent-up demand as businesses began reopening. However, the emergence of a fresh upward trend in infections and deaths in the US is threatening the recovery especially in light of the reclosures which have been activated in some regions in the South and West which have seen the highest number of new infections.

Looking at the breakdown of the data, there were plenty of positive to be seen. The Commerce Department noted that orders for non-defense capital goods (excluding aircraft) was higher by 3.3% last month, marking the largest monthly increase since July 2018. Given that this reading is a closely watched proxy for business spending this is a solid increase to see. However, core capital goods were seen holding 3.2% below pre virus levels. Orders over the month were driven by an increased level of demand for machinery, fabricated metals and primary metals.

US GDP Due on Thursday

The Commerce Department also noted that shipments of core capital goods, used to measure the level of equipment spending in the government’s GDP calculation, were higher by 3.4% over the month. Traders now await the US flash GDP reading on Thursday for the first indication of how the economy performed over Q2. The consensus forecast is for a -34.5% decline in growth, following a 5% contraction in Q1, confirming a technical recession in the US.

Ahead of that release, the Federal Reserve will hold its July FOMC meeting on Wednesday. While no further easing is expected at this point, traders will be paying special attention to the central bank’s assessment of the fresh increase in infections rates in the US and the downside risks posed, with the Fed expected to reiterate its willingness to ease further if necessary.

Technical Views

DXY (Bearish below $94.62)

From a technical viewpoint. The sell-off in the Dollar index has seen price breaking down below the rising trend line from 2018 lows and also the $94.62 level support. Price is now testing the $93.81 level which, if broken, will bring the $92.63 level into view as the next key support. With price moving steadily below the 50dma, the outlook remains firmly bearish in the near term.

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