– Germany GDP to Contract for First Time Since 4Q 2012
– Will the ECB Look Towards Quantitative Easing (QE) as Growth Disappoints?
Trading the News: German Gross Domestic Product (GDP)
The EUR/USD remains at risk of extending the decline from earlier this month should Germany’s Gross Domestic Product (GDP) report put increased pressure on the European Central Bank (ECB) to further embark on its easing cycle.
What’s Expected:
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Why Is This Event Important:Indeed, an economic contraction in Europe’s growth engine may highlight an increased threat for deflation, and ECB President Mario Draghi may show a greater willingness to implement more non-standard measures in 2014 in an effort to encourage a more sustainable recovery in the monetary union.
Expectations: Bearish Argument/Scenario
Release
Expected
Actual
Industrial Production s.a. (MoM) (JUN)
1.2%
0.3%
Factory Orders (MoM) (JUN)
0.9%
-3.2%
IFO Business Climate (JUL)
109.4
108.0
The ongoing weakness in business sentiment along with the slowdown in production may generate a marked decline in the growth rate, and a dismal GDP report may heighten the bearish sentiment surrounding the EUR/USD as market participants ramp up bets for more monetary easing.
Risk: Bullish Argument/Scenario
Release
Expected
Actual
Unemployment Change (JUL)
-5K
-12K
Retail Sales (MoM) (JUN)
1.0%
1.3%
GfK Consumer Confidence (AUG)
8.9
9.0
However, the decline in unemployment paired with the pickup in private sector consumption may alleviate the downside risks for the German economy, and a positive development may encourage a more meaningful correction in the EUR/USD as it limits the ECB’s scope to further embark on its easing cycle in 2014.
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How To Trade This Event Risk(Video)
Bearish EUR Trade: 2Q GDP Contracts More Than 0.1%
Need red, five-minute candle following the GDP print to consider a short EUR/USD position
If market reaction favors a short Euro trade, sell EUR/USD with two separate position
Set stop at the near-by swing high/reasonable distance from cost; at least 1:1 risk-to-reward
Move stop to entry on remaining position once initial target is met, set reasonable limit
Bullish EUR Trade: German Growth Rate Tops Market Expectations
Need green, five-minute candle to favor a long EUR/USD trade
Implement same strategy as the bearish Euro trade, just in the opposite direction
Read More:
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Potential Price Targets For The Release
Chart – Created Using FXCM Marketscope 2.0
Carves string of lower-highs in August; downside remains favorable as bearish RSI momentum remains in play
Interim Resistance: 1.3510 (38.2% expansion) to 1.3540 (61.8% expansion)
Interim Support: 1.3300 Pivot to 1.3310 (78.6% expansion)
Impact that the ECB rate decision has had on EUR/USD during the last meeting
Period
Data Released
Estimate
Actual
Pips Change
(1 Hour post event )
Pips Change
(End of Day post event)
1Q 2014
05/15/2014 6:00 GMT
0.7%
0.8%
-23
-7
1Q 2014 Germany Gross Domestic Product
The German economy grew another 0.8% in first-quarter after expanding 0.4% during the last three-month of 2013, but the European Central Bank (ECB) may have a little choice but to further embark on its easing cycle as the monetary union continues to face a risk for deflation. Despite the muted reaction to the better-than-expected GDP print, the EUR/USD struggled to hold its ground during the European trade, with the pair slipping below the 1.3700 handle, but the single currency firmed up during the North American session to end the day at 1.3707.
— 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