– U.S. Gross Domestic Product to Slow to 1.2%- Lowest Reading Since 1Q 2013.
– Personal Consumption to Grow 1.9% Compared to 3.3% in 4Q 2013.
Trading the News: U.S. Gross Domestic Product (GDP)
The advance GDP report is expected to show a marked slowdown in the U.S. economy as the growth rate is projected to expand a mere 1.2% during the first-quarter, and the bearish sentiment surrounding the dollar may gather pace going into May as the Fed retains a rather dovish tone for monetary policy.
What’s Expected:
Why Is This Event Important:
Indeed, the threat of a slower recovery may drag on interest rate expectations as the Federal Open Market Committee (FOMC) remains in no rush to normalize monetary policy, and a dismal GDP print may spark a further selloff in the greenback as it raises the risk of seeing the central bank retain the zero-interest rate policy (ZIRP) for an extended period of time.
Expectations: Bearish Argument/Scenario
Release
Expected
Actual
New Home Sales (MoM) (MAR)
2.3%
-14.5%
Change in Non-Farm Payrolls (MAR)
200K
192K
Building Permits (MoM) (MAR)
-0.4%
-2.4%
Harsh winter conditions may have heightened the margin of slack in the real economy as the Fed retains a cautious tone for the world’s largest economy, and a weaker-than-expected GDP reading may spark another selloff in the reserve currency as Fed Chair Janet Yellen remains reluctant to move away from the highly accommodative policy stance.
Risk: Bullish Argument/Scenario
Release
Expected
Actual
U. of Michigan Consumer Confidence (APR F)
83.0
84.1
Consumer Credit (FEB)
$14.000B
$16.489B
Personal Income (FEB)
0.3%
0.3%
However, the improvement in household sentiment along with the resilience in private sector consumption may help to generate a positive growth report, and strong GDP figure may increase the appeal of the reserve currency as it puts increased pressure on the central bank to normalize monetary policy sooner rather than later.
How To Trade This Event Risk(Video)
To Cover the Market Reaction to the U.S. 1Q GDP report, Join DailyFX on Demand
BearishUSD Trade: U.S. 1Q GDP Narrows to 1.2% or Lower
Need green, five-minute candle following the print to consider a long EURUSD trade
If market reaction favors a bearish dollar trade, buy EURUSD with two separate position
Place stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward
Move stop to entry on remaining position once initial target is hit, set reasonable limit
Bullish USD Trade: Growth Rate Exceeds Market Forecast
Need red, five-minute candle to favor a short EURUSD trade
Implement same setup as the bearish dollar trade, just in reverse
Potential Price Targets For The Release
Chart – Created Using FXCM Marketscope 2.0
Price & RSI Remains Stuck in Wedge/Triangle Formation From March
Interim Resistance: 1.3960-70 (61.8% expansion)
Interim Support: 1.3650 (78.6 expansion) to 1.3660 (23.6 retracement)
Impact that U.S. GDP has had on EUR/USD during the previous quarter
Period
Data Released
Estimate
Actual
Pips Change
(1 Hour post event )
Pips Change
(End of Day post event)
4Q 2013
01/30/2014 13:30 GMT
3.2%
3.2%
-11
-29
4Q 2013 U.S. Gross Domestic Product (GDP)
The U.S. economy grew another 3.2% during the last three-months of 2013 following the 4.1% rate of growth in the third-quarter, while Personal Consumption increased 3.3% amid forecasts for a 3.7% expansion. Despite the limited reaction to the mixed batch of data, the EUR/USD struggled to hold the 1.3550 region during the North American trade, but the pair firmed up going into the close as it ended the day at 1.3553.
— Written by David Song, Currency Analyst
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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Source: Daily fx
