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Trading U.S. 3Q GDP- Dollar at Risk Amid Slowing Growth

By , Currency Analyst
07 November 2013 09:00 GMT

- U.S. Economy to Grow at Slower Pace in 3Q 2012

- GDP to Slow for First Time Since 4Q 2012

Trading the News: U.S. Gross Domestic Product (GDP)

A slowdown in the U.S. economy may trigger a new round of dollar weakness as it raises the Fed’s scope to further delay the exit strategy.

What’s Expected:

Time of release: 11/07/2013 13:30 GMT, 8:30 EST

Primary Pair Impact: USDJPY

Expected: 2.0%

Previous: 2.5%

DailyFX Forecast: 2.0% to 2.5%

Why Is This Event Important:

Fears of a slowing recovery may encourage the Federal Open Market Committee (FOMC) to carry its highly accommodative policy stance into 2014, and the greenback remains at risk of facing additional headwinds over near-term as the fiscal drag continues to dampen the outlook for growth.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Consumer Confidence (OCT)

75.0

71.2

Change in Non-Farm Payrolls (SEP)

180K

148K

NAHB Housing Market Index (OCT)

57

55

Indeed, the ongoing weakness in the real economy may ultimately lead to a weak GDP print, and the dollar may struggle to hold its ground ahead of Friday’s Non-Farm Payrolls print should the data undermine the taper-timeline laid out by Fed Chairman Ben Bernanke.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

ISM Non-Manufacturing (OCT)

54.0

55.4

ISM Manufacturing (OCT)

55.0

56.4

Durable Goods Orders (SEP)

2.3%

3.7%

Nevertheless, the pickup in business outputs along with the elasticity in private consumption may help to limit the downside for growth, and a positive print may generate a more meaningful rebound in the reserve currency as market participants weigh the outlook for monetary policy.

How To Trade This Event Risk(Video)

*Trading the U.S. 3Q GDP print may not be as clear cut as some of our other trade setups in light of the European Central Bank (ECB) Meeting

Join DailyFX on Demand for Full Coverage of U.S. 3Q GDP

Bearish USD Trade: 3Q GDP Expands Less Than 2.0%

  • Need to see red, five-minute candle following the print to consider a short dollar trade
  • If market reaction favors a bearish dollar trade, sell USDJPY with two separate position
  • Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward
  • Shift stop to cost on remaining position once initial target is hit, set reasonable limit

Bullish USD Trade: Growth Rate Exceeds Market Forecast

  • Need green, five-minute candle to favor a long USDJPY trade
  • Implement same setup as the short dollar trade, just in reverse

Potential Price Targets For The Release

USDJPY Daily

Forex_Trading_U.S._3Q_GDP-_Dollar_at_Risk_Amid_Slowing_Growth_body_Picture_2.png, Trading U.S. 3Q GDP- Dollar at Risk Amid Slowing Growth

Chart - Created Using FXCM Marketscope 2.0

  • Still Stuck in Wedge/Triangle Formation; Continues to Approach Apex
  • Relative Strength Index Retains Threatening Trendline Resistance
  • Interim Resistance: 99.00 Pivot to 99.20 (23.6 expansion)
  • Interim Support: 96.40 (23.6 expansion) to 96.60 (50.0 expansion)

Impact that the 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)

2Q 2013

7/31/2013 12:30 GMT

1.0%

1.7%

+9

-25

2Q 2013 U.S. Gross Domestic Product

Forex_Trading_U.S._3Q_GDP-_Dollar_at_Risk_Amid_Slowing_Growth_body_ScreenShot333.png, Trading U.S. 3Q GDP- Dollar at Risk Amid Slowing Growth

The U.S. economy grew an annualized 1.7% during the three-months through June, with Personal Consumption increasing 1.8% during the same period, but the first-quarter print was revised down to 1.1% from 1.8%. The dollar initially tracked higher following the better-than-expected GDP report, with the USDJPY spiking above the 98.50 region, but the greenback struggled to hold its ground throughout the day as the pair closed at 97.88.

--- Written by David Song, Currency Analyst

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

Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, please follow this link

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07 November 2013 09:00 GMT