- Euro-Zone to Expand Another 0.2% in 4Q 2014.
- Will ECB Keep the Door Open to Introduce More Non-Standard Measures?
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Trading the News: Euro-Zone Gross Domestic Product (GDP)
Another 0.2% expansion in the Euro-Zone’s Gross Domestic Product (GDP) may encourage the European Central Bank (ECB) to drop is dovish tone for monetary policy as the Governing Council anticipates its non-standard measures to boost economic activity.
What’s Expected:
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Why Is This Event Important:However, the ECB may have little choice but to further support the monetary union and introduce additional policy tools in 2015 as the governments operating under the single currency struggle to implement the structural changes to rebalance the economy.
Expectations: Bullish Argument/Scenario
| Release | Expected | Actual |
|---|---|---|
| Retail Sales (MoM) (DEC) | 0.0% | 0.3% |
| Business climate Indicator (JAN) | 0.12 | 0.16 |
| Trade Balance s.a. (AUG) | 13.3B | 15.8B |
Improved confidence paired with greater demand from home and abroad may generate a better-than-expected GDP print, and a pickup in economic activity may encourage a more meaningful rebound in EUR/USD as it raises the ECB’s scope to retain its current policy throughout 2015.
Risk: Bearish Argument/Scenario
| Release | Expected | Actual |
|---|---|---|
| Industrial Production s.a. (MoM) (DEC) | 0.2% | 0.0% |
| Construction Output (MoM) (NOV) | -- | -0.1% |
| Employment (QoQ) (3Q) | -- | 0.2% |
Nevertheless, the ongoing slack across the euro-area may undermine expectations for more meaningful recovery, and the Governing Council may continue to endorse a dovish tone for monetary policy as it struggles to achieve its one and only mandate for price stability.
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How To Trade This Event Risk(Video)
Bullish EUR Trade: Euro-Zone Growth Rate Expands 0.2% or Greater
- Need green, five-minute candle following a positive 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: GDP Report Misses Market Expectations
- Need red, five-minute candle to favor a short EUR/USD trade
- Implement same strategy as the bullish euro trade, just in reverse
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Potential Price Targets For The Release
EUR/USD Daily
Chart - Created Using FXCM Marketscope 2.0
- Keeping a close eye on the bearish RSI momentum, but the series of closes above the 1.1130 handle may generate a larger recovery in EUR/USD.
- Interim Resistance: 1.1600 pivot to 1.6110 (61.8% expansion)
- Interim Support: 1.1096 (2015 low) to 1.1100 pivot
Impact that Euro-Zone GDP has had on EUR/USD during the last quarter
| Period | Data Released | Estimate | Actual | Pips Change | Pips Change |
|---|---|---|---|---|---|
| 3Q A 2014 | 11/14/2014 10:00 GMT | 0.1% | 0.2% | -1 | +59 |
3Q 2014 Euro-Zone Gross Domestic Product (GDP)
The Euro-area economy grew a modest 0.2% in the third quarter of 2014, following a revised 0.1% expansion during the three-months through June. Despite the better-than-expected print, the European Central Bank (ECB) may come under pressure to further embark on its easing cycle and introduce a quantitative easing (QE) program as it struggles to achieve the 2% target for inflation. Beyond the limited market reaction, EUR/USD drifted towards the 1.2400 handle going into the North American trade, but the weakness was short-lived as the pair recovered to close at 1.2501.
--- 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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