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EUR/USD to Threaten Opening Monthly Range on Strong Euro-Zone 4Q GDP

EUR/USD to Threaten Opening Monthly Range on Strong Euro-Zone 4Q GDP

2015-02-13 05:00:00
David Song, Shuyang Ren,
Share:

- Euro-Zone to Expand Another 0.2% in 4Q 2014.

- Will ECB Keep the Door Open to Introduce More Non-Standard Measures?

For more updates, sign up for David's e-mail distribution list.

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:

EUR/USD GDP

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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

Read More:

GBPAUD - Trading At Dual Channel Resistance

USDOLLAR 2nd Large Outside Day Reversal This Month

Potential Price Targets For The Release

EUR/USD Daily

EUR/USD Daily Chart

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

(1 Hour post event )

Pips Change

(End of Day post event)

3Q A 2014

11/14/2014 10:00 GMT

0.1%

0.2%

-1

+59

3Q 2014 Euro-Zone Gross Domestic Product (GDP)

EUR/USD Chart

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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