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Euro Rebound at Risk on Slowing 3Q GDP- More Dovish ECB Ahead?

Euro Rebound at Risk on Slowing 3Q GDP- More Dovish ECB Ahead?

David Song, Strategist

- German Gross Domestic Product (GDP) to Grow for Two Straight Quarters

- 2Q GDP (0.7%) Marked the Fastest Pace of Growth Since 1Q 2012

Trading the News: German Gross Domestic Product

Germany’s 3Q Gross Domestic Product (GDP) report may highlight a weakening outlook for the euro-area as the region’s largest economy faces a slowing recovery. In turn, a dismal development may heighten the bearish sentiment surrounding the single currency as it spurs bets for additional monetary support.

What’s Expected:

Time of release:11/14/2013 7:00 GMT, 2:00 EST

Primary Pair Impact: EURUSD

Expected: 0.3%

Previous: 0.7%

DailyFX Forecast: 0.1% to 0.3%

Why Is This Event Important:

Following the surprise rate cut last week, it seems as though the European Central Bank (ECB) will further embark on its easing cycle as President Mario Draghi maintains his pledge to keep interest rates at the current level or lower, and the Governing Council may adopt more non-standard measures over the coming months as growth and inflation remains subdued.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Industrial Production s.a. (MoM) (SEP)

0.0%

-0.9%

Retail Sales (MoM) (SEP)

0.4%

-0.4%

Unemployment Change (OCT)

0K

2K

The 3Q growth rate may undershoot market expectations amid the rise in unemployment paired with the slowdown in private sector consumption, and a weak GDP print may prompt the EURUSD to give back the rebound from earlier this week as it raises the ECB’s scope to implement more monetary easing.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Trade Balance (SEP)

15.4B

20.4B

Factory Orders (MoM) (SEP)

0.5%

3.3%

ZEW Survey- Expectations (OCT)

49.6

52.8

Nevertheless, improved confidence along with the pickup in global trade may result in a more upbeat growth figure, and a positive print may encourage a more meaningful rebound in the EURUSD as it dampens speculation for more ECB support.

Potential Price Targets For The Release

EURUSD Daily

Forex_Euro_Rebound_at_Risk_on_Slowing_3Q_GDP-_More_Dovish_ECB_Ahead_body_Picture_2.png, Euro Rebound at Risk on Slowing 3Q GDP- More Dovish ECB Ahead?

Chart - Created Using FXCM Marketscope 2.0

  • Former Support in Focus- May Serves as New Resistance
  • Relative Strength Index Clears Bearish Trend
  • Interim Resistance: 1.3450 (50.0% expansion) to 1.3490 (50.0% retracement)
  • Interim Support: 1.3290 (50.0% retracement) to 1.3300 Pivot

How To Trade This Event Risk(Video)

Bearish Euro Trade: German 3Q GDP Misses Market Forecast

  • Need red, five-minute candle following the report to favor a bearish Euro trade
  • If reaction favors selling Euro, short EURUSD with two separate position
  • Set stop at the near-by swing high/reasonable distance from entry; need at least 1:1 risk-to-reward
  • Move stop to entry on remaining position once initial target is hit, set reasonable limit

Bullish Euro Trade: Growth Rate Exceeds 0.3%

  • Need green, five-minute candle to consider a long EURUSD trade
  • Implement same strategy as the bearish Euro trade, just in the opposite direction

Impact that the German GDP report has had on EUR during the last quarter

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

2Q A 2013

8/14/2013 6:00 GMT

0.6%

0.7%

-14

-19

2Q 2013German Gross Domestic Product

Forex_Euro_Rebound_at_Risk_on_Slowing_3Q_GDP-_More_Dovish_ECB_Ahead_body_ScreenShot383.png, Euro Rebound at Risk on Slowing 3Q GDP- More Dovish ECB Ahead?

After holding flat during the first three-months of 2013, Europe’s largest economy grew 0.7% in the second quarter to emerge from the recession, while the euro-area expanded 0.3% during the same period amid forecasts for a 0.2% print. Nevertheless, the initial uptick in the EURUSD was short-lived, with the pair slipping back below the 1.3275 region, and the single currency struggled to hold its ground throughout the day as it closed at 1.3252.

--- 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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