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Stronger USD Recovery on Tap amid Upward Revision to 2Q GDP

Stronger USD Recovery on Tap amid Upward Revision to 2Q GDP

2013-09-26 10:00:00
David Song, Strategist
Share:

- U.S. 2Q GDP to Be Revised Higher from Preliminary Print

- Personal Consumption to Climb 1.9% Versus 1.8%

Trading the News: Final U.S. Gross Domestic Product

Another upward revision in the 2Q U.S. Gross Domestic Product (GDP) report may spur a more meaningful recovery in the dollar as it dampens the Fed’s scope to retain its highly accommodative policy stance.

What’s Expected:

Time of release: 09/26/2013 12:30 GMT, 8:30 EDT

Primary Pair Impact: EURUSD

Expected: 2.6%

Previous: 2.5%

DailyFX Forecast: 2.5% to 2.8%

Why Is This Event Important:

Indeed, the limited reaction to the U.S. data prints from earlier this week certainly suggests market participants are waiting on a larger fundamental catalyst to move on, and a positive development may foster a bullish setup for the reserve currency amid the ongoing discussion at the Fed to taper the asset-purchase program.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Existing Home Sales (MoM) (AUG)

-2.6%

1.7%

ISM Non-Manufacturing (JUL)

53.1

56.0

ISM Manufacturing (JUL)

52.0

55.4

The pickup in business outputs paired with the ongoing recovery in the housing market may prompted a bigger-than-expected rise in the growth rate, and the FOMC may be more inclined to implement its exit strategy next month should the data raise the outlook for growth.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Consumer Confidence (SEP)

79.9

79.7

Advance Retail Sales (AUG)

0.5%

0.2%

Change in Non-Farm Payrolls (AUG)

180K

169K

Nevertheless, the slowdown in private consumption along with the persistent slack in the labor market may drag on the growth rate, and a dismal print may prompt the Fed to further delay the taper in an effort to encourage a stronger recovery.

How To Trade This Event Risk(Video)

Join Analyst on Demand For Full Coverage of the 2Q U.S. GDP Report

Bullish USD Trade: 2Q GDP Expands 2.6% or Greater

  • Need red, five-minute candle following the release to consider a short EURUSD trade
  • If the market reaction favors a bullish dollar trade, establish short EURUSD with two position
  • Place stop at the near-by swing high/reasonable distance from entry with at least 1:1 risk-to-reward
  • Move stop to breakeven on remaining position once initial target is reached; set reasonable limit

Bearish USD Trade: Growth Rate Misses Market Forecast

  • Need green, five-minute candle following the release to look at a long EURUSD entry
  • Implement same setup as the bullish USD trade, just in opposite direction

Potential Price Targets For The Release

Forex_Stronger_USD_Recovery_on_Tap_amid_Upward_Revision_to_2Q_GDP_body_Picture_2.png, Stronger USD Recovery on Tap amid Upward Revision to 2Q GDP

Chart - Created Using FXCM Marketscope 2.0

  • Marks Fifth Failed Attempt to Close Above the 1.3530-40 (61.8% Fib expansion)
  • Relative Strength Index Tracking Lower Following Bearish Break
  • Interim Resistance: 1.3530-40 (61.8% Fibonacci expansion)
  • Interim Support: 1.3360 (38.2% Fibonacci expansion) to 1.3380 Pivot

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)

1Q F 2013

06/26/2013 12:30 GMT

2.4%

1.8%

+7

-15

1Q F 2013 U.S. Gross Domestic Product

Forex_Stronger_USD_Recovery_on_Tap_amid_Upward_Revision_to_2Q_GDP_body_ScreenShot147.png, Stronger USD Recovery on Tap amid Upward Revision to 2Q GDP

The final 1Q GDP print showed an unexpected downward revision in the growth rate as the economy expanding 1.8% during the first three-months of 2013, while Personal Consumption increased 2.6% versus an initial forecast of 3.4%. The dismal development dragged on the dollar, with the EURUSD rallying into the 1.3050 region, but the reaction was short-lived as the pair ended the day at 1.3010.

--- 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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