When it comes to talking about how to trade economic events in Forex, almost all traders and investors think about interest rates, inflation, and the famous nonfarm payrolls. However, the durable goods orders data has a significant value in the economic landscape of any country.
Today, we are going to talk about durable goods orders, a well known economic report that due to its manufacturing implications has a particular impact in the Forex market, and the Forex nation around the world follow it.
What is the durable orders report, how to understand it, and how to trade durable goods orders and make money in Forex with it? Questions that need to be solved. So, let’s talk about the essential principles of this economic report in the foreign exchange market.
What are durable goods orders
The durable goods orders is a key economic indicator which is published every month by the Census Bureau in the United States. In other countries, similar economic events are released, including the Factory orders in Germany, Industrial New Orders and Manufacturing orders in the Eurozone, and the machinery orders in Japan, among others.
The report is part of the Industrial and Non-Industrial Activity sector, and analysts also combine it with the Factory Orders report. The data accounts for the cost of orders received by factories and manufacturers for goods that last for three or more years and is usually represented by its percentage change of monthly readings.
Durable goods orders are released in two reports every month, the advance report that talks explicitly about the first hand collected data, and the information contained in the manufacturers’ shipments, inventories, and orders report.
Why durable goods orders are important
If we take the durable goods order definition with attention, it talks about goods that are expensive and last many years. It may include machinery, equipment, raw materials, computers, airplanes, etc. So their purchases are not regular or frequent as other goods.
As Durable goods are an important component of the economy that measures the number of orders received by manufacturers, and the manufacturing sector usually accounts for more than half of the economy of a country, the report is vital because it shows how the sector will be doing in terms of manufacturing production.
Also, investment reacts to economic growth, A high number of durable orders indicates that the economy is doing well. On the other hand, a low number may indicate that the economy is deteriorating and the manufacturing sector is not doing good.
How durable good orders work
The report of durable orders is also taken with a grain of salt. Because some durable goods are very expensive, such as airplanes, tanks, etc, there is a component of the report that excludes those items: The durable goods orders excluding transportation and defense.
In that way, they will have a more precise look of how the economy is doing without the hype of ultra-expensive budget of the defense department or the purchases of airplanes by commercial airlines.
Investors watch durable goods order to identify trends in the manufacturing sectors that will give them hints on how busy factories can be in the future, and finally, how the economy is doing in the long term.
Durable goods orders have a significant impact on the Forex market, but investors also watch the ex-transportation and defense component.
How to trade factory orders
Given the importance of the durable goods orders report, traders observe it thoroughly, especially the advance report, which is published around the middle of every month.
That being said, the final figure shows the state of the production of a country activity. A good or higher than expected number will fuel the currency of the given country, while a bad or weaker than previously anticipated figure will lead the money down.
If you are trading the US durable goods orders report, you may want to pay attention to the EUR/USD and the USD/JPY pairs.
In the case you are trading the related data in European countries, you may want to trade the EUR/JPY, the EUR/GBP, and also, of course, the EUR/USD. In the case of the United Kingdom, check the wild GBP/JPY for excellent opportunities, and the GBP/USD.
How long does the effect last
The duration of the effect of an economic event in the markets may vary. Sometimes it also has an impact before the data when traders try to buy the rumor and sell the fact, but yes, it has effects after the publication.
Ideally, you may want to trade the economic data after the initial 15 minutes post-release, so the dust will settle after the initial reaction, and then during the first four hours after the publication. However, a 2005 study by Martin Evans and Richard Lyons titled “Do Currency Markets Absorb News Quickly?” showed that Forex is still absorbing news after several days.
According to the paper, “our results provide forceful evidence that currency markets are still absorbing news after several days. By ‘still absorbing’ we mean that end-user trades are still being induced, and these induced trades are having persistent effects on prices.”
Forex and Durable Goods Orders
So, Should you trade durable goods orders data? The answer should come from you after in-depth research and understanding on how to trade economic releases in Forex. Here in Forex Traders Guide, we have several articles that may help you with your endeavor.
Check our pages and find how to trade different economic data and also how to understand technical indicators and fundamental studies. Do it and you will not regret it, and it will certainly help you with your Forex career.
Leave a Reply