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EUR/USD to Face Larger Rebound as 1Q GDP Growth Picks Up

By , Currency Analyst  and Gregory Marks
15 May 2014 02:00 GMT

- German 1Q GDP to Expand 0.7%- Fastest Rate of Growth Since 2Q 2013.

- Europe’s Largest Economy to Grow for Fourth Consecutive Quarter.

Trading the News: Germany Gross Domestic Product

The advance GDP report is expected to show Europe’s largest economy expanding at a faster pace during the first three-months of 2014, and a marked pickup in the growth rate may encourage a more meaningful rebound in the EUR/USD as it dampens the threat for deflation.

What’s Expected:

EUR/USD 1Q GDP

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Why Is This Event Important:

Despite expectations of seeing the European Central Bank (ECB) further embark on its easing cycle, an upbeat GDP reading may boost the appeal of the single currency ahead of the next interest rate decision on June 5, but the EUR/USD face additional headwinds in the second-half of the year as President Mario Draghi shows a greater willingness to implement more non-standard measures.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Unemployment Change (APR)

-10K

-25K

IFO Business Climate (APR)

110.4

111.2

GfK Consumer Confidence (MAY)

8.5

8.5

The ongoing improvement in the labor market paired with the rise in household and business confidence may generate a better-than-expected GDP report, and a marked rise in the growth rate should spur a bullish reaction in the EUR/USD as it raises the fundamental outlook for the monetary union..

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Trade Balance (MAR)

17.4B

16.4B

Retail Sales (MoM) (MAR)

-0.7%

-0.7%

Factory Orders (MoM) (MAR)

0.3%

-2.8%

However, the slowdown in domestic demands along with the weakening outlook for global trade may raise the risk for a protracted recovery, and a dismal print may heighten the bearish sentiment surrounding the single currency as it puts increased pressure on the ECB to further embark on its easing cycle.

How To Trade This Event Risk(Video)

Bullish EUR Trade: German 1Q GDP Climbs 0.7% or Greater

  • Need green, five-minute candle following the release to consider a long Euro trade
  • If market reaction favors a long 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: Growth Report Disappoints

  • Need red, five-minute candle to favor a short EUR/USD trade
  • Implement same strategy as the bullish euro trade, just in the opposite direction

Potential Price Targets For The Release

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Fails to Maintain Ascending Channel & Bullish RSI Momentum From 2013
  • Interim Resistance: 1.3960-70 (61.8 expansion)
  • Interim Support: 1.3650 (78.6% expansion) to 1.3660 (61.8% retracement)

Join DailyFX on Demand to Cover Current Trade Setups on the Euro!

Impact that the German Gross Domestic Product 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)

4Q 2013

02/14/2014 7:00 GMT

0.3%

0.4%

+20

+21

4Q 2013 German Gross Domestic Product (GDP)

EUR/USD Chart

German GDP came in a tenth of a percent better than expected at the 4Q preliminary print and the Euro edged up slightly against the greenback. The first quarter preliminary figure is likely to cause more volatility and possibly greater follow through on price action as the Euro resides between a rock and a hard place. Any pronounced weakness in the print is likely to prompt Euro weakness across the board as June speculation of ECB action ramps up following Draghi’s comments last week.

--- Written by David Song, Currency Analyst and Gregory Marks

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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15 May 2014 02:00 GMT