EUR/USD: Trading the German Factory Orders

German Factory Orders measures the change in new purchase orders placed with  manufacturers. A  reading that is higher than the market forecast is bullish for the euro.

Here are all the details, and 5 possible outcomes for EUR/USD.

Published on Tuesday at 10:00 GMT.

Indicator Background

Factory Orders is an important indicator of the health of the manufacturing sector. As the manufacturing sector is an important engine of economic growth, this indicator is carefully monitored by analysts. Rising factory orders indicates  that manufacturers will increase their activity to fill orders, which increases productivity and strengthens the economy.

The indicator looked sharp in April,  posting a 2.3% gain. This easily beat the forecast of 1.2%. The markets are bracing for a weak reading in the upcoming release, with an estimate of a 0.4% decline.

Sentiments and levels

The ECB acknowledged the worsening situation and cut interest rates last week.  With the hint on negative rates, the euro tumbled, and the pressure on the euro could continue. This joins the various debt-crisis related issues in the old continent.

In the US, the Fed showed little willingness to add more QE, and opted to continue with more of the same. After a string of weak releases,  US employment data looked sharp last week, and  disappointing data seen earlier was significantly revised to the upside. So, the overall sentiment is bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.3255, 1.32, 1.3160 1.31, 1.3030 and 1.2960.

5 Scenarios

1. Within expectations: -0.7% to -0.1%: In such a case, the euro is likely to rise within range, with a small chance of breaking higher.
2. Above expectations:  0.0% to 0.3%: A reading of zero or  above can send EUR/USD well above one  resistance line.
3. Well above  expectations: Above 0.3%:  In this scenario,  a second resistance  line might be broken.
4. Below expectations:  -1.1% to -0.8%: A sharper decrease than forecast could send the pair below  one support level.
5. Well below expectations:  Below -1.1%: A reading deep in negative territory could push the pair lower, and EUR/USD could break two or more support levels.

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