– Euro-Zone 2Q GDP to Expand Annualized 1.3%- Fastest Pace of Growth Since 3Q 2011.
– Will Faster Growth Spark a ‘Taper Tantrum’ as GDP Picks Up for Three-Straight Quarters?
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Trading the News: Euro-Zone Gross Domestic Product (GDP)
The Euro-Zone’s 2Q Gross Domestic Product (GDP) report may boost the appeal of the single currency and spur fresh monthly highs in EUR/USD as the growth rate is expected to increase 1.3% following the 1.0% expansion during the first three-months of 2015.
What’s Expected:
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Why Is This Event Important:
Despite the European Central Bank’s (ECB) pledge to ‘fully implement’ its quantitative easing (QE) program, data prints pointing to a stronger recoverymay encourage the Governing Council to adopt an improved outlook for the region, and the board remains at risk of facing a ‘taper tantrum’ over the medium-term as central bank President Mario Draghi remains confident in achieving the one and only mandate for stability.
Expectations: Bullish Argument/Scenario
Release
Expected
Actual
Business Climate Indicator (JUL)
0.19
0.39
M3 Money Supply (3M) (JUN)
5.1%
5.1%
Sentix Investor Confidence (JUL)
15.0
18.5
Improved confidence along with the pickup in private-sector lending may generate a strong GDP figure, and a positive development may spur a bullish reaction in the euro as it dampens the ECB’s scope to further embark on its easing cycle.
Risk: Bearish Argument/Scenario
Release
Expected
Actual
Industrial Production s.a. (MoM) (JUN)
-0.1%
-0.4%
Retail Sales (MoM) (JUN)
-0.2%
-0.6%
Trade Balance s.a. (MAY)
22.0B
21.2B
However, slowing outputs paired with the ongoing weakness in private-sector spending may drag on the growth rate, and a dismal print may undermine the near-term advance in EUR/USD as it raises the risk of seeing the ECB implement more non-standard measures.
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How To Trade This Event Risk(Video)
Bullish EUR Trade: 2Q GDP Expands Annualized 1.2% or Greater
Need green, five-minute candle following a positive growth report to consider a long EUR/USD trade.
If market reaction favors a bullish Euro trade, buy EUR/USD with two separate position.
Set stop at the near-by swing low/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.
Bearish EUR Trade: Euro-Zone Growth Rate Disappoints
Need red, five-minute candle to favor a short EUR/USD trade.
Implement same strategy as the bullish euro trade, just in reverse.
Read More:
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Potential Price Targets For The Release
EURUSD Daily
Chart – Created Using FXCM Marketscope 2.0
Policy divergence between the ECB/Fed continues to foster a long-term bearish outlook for EUR/USD, but the pair may face a larger correction in the days ahead as long as the Relative Strength Index (RSI) preserves the bullish momentum carried over from the previous month.
DailyFX Speculative Sentiment Index (SSI)shows the retail crowd remains net-short EUR/USD since March 9, but the ratio has come off of recent extremes as it narrows to -2.05, with 33% of traders long.
Interim Resistance: 1.1180 (23.6% expansion) to 1.1210 (61.8% retracement)
Interim Support: 1.0790 (50% expansion) to 1.0800 (23.6% expansion)
Impact that Euro-Zone GDP has had on EUR/USD during the last quarter
Period
Data Released
Estimate
Actual
Pips Change
(1 Hour post event )
Pips Change
(End of Day post event)
1Q A 2015
05/13/2015 09:00 GMT
1.0%
1.0%
+32
+86
1Q 2015 Euro-Zone Gross Domestic Product (GDP)
The euro-area grew at the fastest pace in 2-years as the growth rate increased an annualized 1.0% following the 0.9% expansion during the last three-months of 2014. Despite the dovish tone held by the European Central Bank (ECB), positive developments coming out of the real economy may encourage a growing dissent within the Governing Council, and the central bank may come under pressure to scale-back its asset-purchase program as the region appears to be getting on a firmer footing. The Euro rallied following the pickup in GDP, with EUR/USD climbing above the 1.1300 handle to end the North American trade at 1.1353.
— Written by David Song, Currency Analyst and Shuyang Ren
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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Source: Daily fx