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EUR/USD- Trading the U.S. 1Q GDP Report

By , Currency Analyst
26 April 2013 05:00 GMT

Trading the News: U.S. Gross Domestic Product

What’s Expected:

Time of release: 04/26/2013 12:30 GMT, 8:30 EDT

Primary Pair Impact: EURUSD

Expected: 3.0%

Previous: 0.4%

DailyFX Forecast: 1.0% to 1.5%

Why Is This Event Important:

The advanced GDP report is expected to show the world’s largest economy expanding at an annual rate of 3.0% in the first-quarter, and the faster rate of growth may heighten the appeal of the U.S. dollar as dampens the Fed’s scope to expand the balance sheet further. Although the FOMC continues to promote its highly accommodative policy stance, it seems as though a growing number of central bank officials are looking to scale back on quantitative easing, and we may see the central bank move away from its easing cycle later this year as the economic recovery gradually gathers pace.

Recent Economic Developments

The Upside

Release

Expected

Actual

New Home Sales (MoM) (MAR)

1.1%

1.5%

Housing Starts (MAR)

1.4%

7.0%

Consumer Credit (FEB)

$15.000B

$18.139B

The Downside

Release

Expected

Actual

Durable Goods Orders (MAR)

-3.0%

-5.7%

Advance Retail Sales (MAR)

0.0%

-0.4%

Change in Non-Farm Payrolls (MAR)

190K

88K

The pickup in housing along with the ongoing expansion in consumer credit may produce a strong GDP print, and a positive development should spark a bullish reaction in the greenback as it raises the outlook for the world’s largest economy. However, the slowdown in private sector consumption paired with the persistent weakness in the labor market may drag on the growth rate, and we may see the dollar struggle to hold its ground should the report disappoint.

Potential Price Targets For The Release

Forex_EURUSD-_Trading_the_U.S._1Q_GDP_Report_body_EURUSD_David.png, EUR/USD- Trading the U.S. 1Q GDP Report

As the EURUSD struggles to push back above the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3120, we may see the head-and-shoulders pattern continue to take shape, and the pair may continue to work its way back towards the 23.6% retracement (1.2640-50) should the U.S. GDP report increase the appeal of the dollar. However, a dismal growth figure may trigger a run at the monthly high (1.3200), and we may see the reversal pattern fail to play out should the data fuel speculation for more Fed support.

How To Trade This Event Risk

Forecasts for a faster rate of growth instills a bullish outlook for the greenback, and a positive development may pave the way for a long U.S. dollar trade as the data dampens bets for more quantitative easing. Therefore, if the growth rate expands 3.0% or greater, we will need a red, five-minute candle following the release to establish a short trade on two-lots of EURUSD. Once these conditions are met, we will set the initial stop at the nearby swing high or a reasonable distance from the entry, and this risk will generate our first target. The second objective will be based on discretion, and we will move the stop on the second lot to breakeven once the first trade hits its mark in an effort to lock-in our profits.

In contrast, the ongoing slack in the labor market along with the slowdown in private consumption may drag on the economy, and a dismal growth report may spark a bearish reaction in the USD as it fuels speculation for additional monetary support. As a result, if GDP fails to meet market expectations, we will implement the same strategy for a long euro-dollar as the short position laid out above, just in reverse.

Impact that U.S. GDP report has had on USD during the last quarter

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

4Q A 2012

01/30/2013 13:30 GMT

1.1%

-0.1%

+12

+26

4Q 2012 Advanced U.S. GDP

Forex_EURUSD-_Trading_the_U.S._1Q_GDP_Report_body_ScreenShot189.png, EUR/USD- Trading the U.S. 1Q GDP Report

Economic activity in the U.S. unexpectedly slipped an annualized 0.1% in the fourth quarter after expanding 3.1% during the three-months through September, while personal consumption increased 2.2% amid forecasts for a 2.1% print. Despite the mixed batch of data, the EURUSD tracked steadily higher following the print, with the pair ending the day at 1.3565.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com.

Follow me on Twitter at @DavidJSong

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26 April 2013 05:00 GMT