Market Shrugs Off Good Durables Data and Sells Dollars

Despite the soft headline, US August durable goods orders report was stronger than expected but this has been insufficient to spur a recovery in the dollar. Nevertheless, the durable goods orders are consistent with the recent string of economic data suggesting that the US economy might be stabilizing after the disappointing Q2.

The July series was also revised higher. Excluding transportation orders, durable goods orders rose 2% compared with market expectations for a 1% rise. The shipment of non-defense capital goods, excluding aircraft, is used to forecast GDP. It increased 1.6% in August after a revised 0.1% rise in July. This had initially been reported as a decline. Inventories rose 0.4%, but the stock/shipment ratio is still a lowly 1.58:1 from 1.55:1 in July.

Perhaps because the FOMC statement focused so much on inflation and not the real sector or unemployment that it may deter dollar buying on decent real sector data like this report. The euro is making new highs for the week and sterling is moving up in its wake. The $1.35 area--corresponding to a 50% retracement of the Nov 09-May 10 euro swoon, may be a bit too far today, but will likely be seen in the rear view mirror early next week.