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EURUSD Rebound at Risk on Dismal 4Q German GDP Report

EURUSD Rebound at Risk on Dismal 4Q German GDP Report

David Song, Gregory Marks,

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

- 2Q GDP (0.7%) Marked the Fastest Pace of Growth for 2013

Trading the News: German Gross Domestic Product

Germany’s Gross Domestic Product (GDP) figure may undermine the recent rebound in the EURUSD as Europe’s largest economy is expected to grow yet another 0.3% during the last three-months of 2013.

What’s Expected:

Time of release: 02/14/2014 7:00 GMT, 2:00 EST

Primary Pair Impact: EURUSD

Expected: 0.3%

Previous: 0.3%

DailyFX Forecast: 0.1% to 0.3%

Why Is This Event Important:

As mentioned in DailyFX on Demand, a disappointing growth report may put increased pressure on the European Central Bank (ECB) to further embark on its easing cycle amid the threat for disinflation, and the single currency may continue to carve a series of lower highs paired with lower lows amid the protracted recovery in the monetary union.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

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

0.3%

-0.6%

Factory Orders (MoM) (DEC)

0.2%

-0.5%

Retail Sales (MoM) (DEC)

0.2%

-2.5%

Slowing outputs along with the ongoing weakness in private sector consumption may show a slowing recovery in Germany, and a dismal GDP print may spark a selloff in the Euro as it raises the ECB scope to further support the ailing economy.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Unemployment Change (JAN)

-5K

-28K

GfK Consumer Confidence (FEB)

7.6

8.2

IFO Business Climate (JAN)

110.0

110.6

Nevertheless, improved confidence across the euro-area may generate a pickup in the 4Q growth rate, and a positive development may ultimately threaten the bearish EURUSD trend dating back to 2008 as market participants scale back bets for additional monetary stimulus.

How To Trade This Event Risk(Video)

Bearish Euro Trade: German 4Q GDP Misses Market Forecast

  • Need red, five-minute candle following the report to favor a bearish Euro trade
  • If reaction favors short Euro trade, sell 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 Tops 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

Potential Price Targets For The Release

EURUSD Daily

Forex_EURUSD_Rebound_at_Risk_on_Dismal_4Q_German_GDP_Report_body_Picture_2.png, EURUSD Rebound at Risk on Dismal 4Q German GDP Report

Chart - Created Using FXCM Marketscope 2.0

  • At Risk for Range-Bound Prices Ahead of ECB March 6 Meeting
  • Relative Strength Index Clears Bearish Trend
  • Interim Resistance: 1.3800 (100.0 expansion) to 1.3830 (61.8 retracement)
  • Interim Support: 1.3450 (38.2% retracement) to 1.3460 (50.0% expansion)

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)

3Q F

11/22/2013 7:00 GMT

0.3%

0.3%

+10

+65

3Q 2013 German Gross Domestic Product

Forex_EURUSD_Rebound_at_Risk_on_Dismal_4Q_German_GDP_Report_body_Picture_1.png, EURUSD Rebound at Risk on Dismal 4Q German GDP Report

For the third quarter final print, Germany met preliminary figures of 0.3% QoQ growth and the Euro was left little unchanged against the greenback after a slight spike. More volatility occurred at the 09:00GMT where we saw a large EUR/USD move to the upside. Although German IFO surveys missed expectations, Italian Retail Sales MoM came in far above expectations at the same time release. Note that we may see more volatility after the German GDP once more as we have Italian GDP at 09:00GMT and the Eurozone print at 10:00GMT.

--- 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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