– U.S. Final 1Q GDP Print to Show Another Downward Revision/Larger Contraction.
– 1.8% Decline Would Mark the Biggest Drop Since 1Q 2009 (-5.4%).
Trading the News: U.S. Gross Domestic Product (GDP)
The final 1Q Gross Domestic Product (GDP) report may heighten the bearish sentiment surrounding the U.S. dollar as market participants anticipate another downward revision in the growth rate.
What’s Expected:
Why Is This Event Important:
A more meaningful decline in the growth rate may spark a bearish reaction in the greenback (bullish EUR/USD) as it gives the Federal Reserve greater scope to retain its highly accommodative policy stance, and the reserve currency may face additional headwinds throughout the summer months as central bank Chair Janet Yellen continues to endorse a dovish tone for monetary policy.
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Expectations: Bearish Argument/Scenario
Release
Expected
Actual
Building Permits (MoM) (MAY)
-0.9%
-6.4%
Housing Starts (MoM) (MAY)
-3.9%
-6.5%
ISM Manufacturing (MAY)
55.5
55.4
The ongoing slack in business outputs paired with the slowdown in housing activity may prompt a larger-than-expected decline in 1Q GDP, and a dismal print may generate a more meaningful rebound in the EUR/USD as the data drags on interest rate expectations.
Risk: Bearish Argument/Scenario
Release
Expected
Actual
Consumer Credit (APR)
$15.000B
$26.847B
Change in Non-Farm Payrolls (MAY)
215K
217K
Durable Goods Orders (APR)
-0.7%
0.8%
However, stronger job growth along with the pickup in private sector credit may have helped to limit the downturn in economic activity, and a positive development may generate a bullish outlook for the greenback as it puts increased pressure on the Fed to normalize monetary policy sooner rather than later.
How To Trade This Event Risk(Video)
Bearish USD Trade: U.S. 1Q GDP Contracts 1.8% or Greater
Need green, five-minute candle following the GDP print to consider a long EUR/USD trade
If market reaction favors a bearish dollar trade, long EUR/USD 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 Expectations
Need red, five-minute candle to favor a short EUR/USD trade
Implement same setup as the bearish dollar trade, just in opposite direction
Potential Price Targets For The Release
Chart – Created Using FXCM Marketscope 2.0
Continues to Threaten Trendline Resistance; Bullish Breakout Brings Up June High (1.3676)
Interim Resistance: 1.3650 (78.6% expansion) to 1.3670 (61.8% retracement)
Interim Support: 1.3490 (50.0% retracement to 1.3500 Pivot
Read More:
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Crude Oil Volatility To Continue, Platinum Exposed To Strike Deal
Impact that U.S. 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)
4Q F 2014
03/27/2014 12:30 GMT
2.7%
2.6%
+10
-18
4Q F U.S. Gross Domestic Product (GDP)
The final 4Q GDP report showed an upward revision in the growth rate as the U.S. economy expanded an annualized 2.6% amid an initial forecast of 2.4%. The greenback struggled to hold its ground following the release as the EUR/USD climbed towards the 1.3775 region, but the dollar regained its footing during the North American trade, with the pair ending the day at 1.3739.
— 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
