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EUR/USD Risks Fresh Monthly Highs on Strong Euro-Zone 1Q GDP

EUR/USD Risks Fresh Monthly Highs on Strong Euro-Zone 1Q GDP

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

- Euro-Zone 1Q GDP to Expand Annualized 1.0%- Fastest Pace of Growth Since 1Q 2014.

- Will Faster Growth Spark a ‘Taper Tantrum’ in Euro-Area?

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

Trading the News: Euro-Zone Gross Domestic Product (GDP)

The Euro-Zone’s 1Q Gross Domestic Product (GDP) report may heighten the appeal the single currency and spur a bullish reaction in EUR/USD as market participants anticipate a faster rate of growth in the monetary union.

What’s Expected:

EUR/USD GDP

Click Here for the DailyFX Calendar

Why Is This Event Important:Signs of a stronger recovery may encourage the European Central Bank (ECB) to further scale back its dovish tone for monetary policy, and the Governing Council remains at risk of facing a ‘taper tantrum’ in the second-half of the year even as central bank President Mario Draghi pledges to retain the EUR 60B/monthly purchases.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Business Climate Indicator (APR)

0.20

0.32

Trade Balance s.a. (FEB)

22.0B

22.0B

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

0.4%

1.1%

The rebound in business outputs paired with the ongoing expansion in the trade surplus may generate a strong GDP print, and a marked pickup in economic activity may spur a near-term advance in EUR/USD as market participants ramp up bets for the ECB to halt its quantitative easing (QE) ahead of schedule.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Retail Sales (MoM) (MAR)

-0.7%

-0.8%

Unemployment Rate (MAR)

11.2%

11.3%

Construction Output (MoM) (FEB)

--

-1.8%

However, the GDP report may fail to meet market expectations amid the ongoing slack in the real economy, and a dismal figure may dampen the near-term outlook for EUR/USD as the ECB keeps the door open to further embark on its easing cycle.

Join DailyFX on Demand for Real-Time Updates on the DailyFX Speculative Sentiment Index (SSI)!

How To Trade This Event Risk(Video)

Bullish EUR Trade: Euro-Zone GDP Expands Annualized 1.0% or Greater

  • Need green, five-minute candle following a positive growth 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: Growth Rate Falls Short of Market Forecast

  • 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:

Price & Time: Euro Rebounds Sharply

COT-Position Flip in Swiss Francs

Potential Price Targets For The Release

EUR/USD Daily Chart

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • EUR/USD remains at risk for a further advance as the bullish momentum on the Relative Strength Index (RSI) continues to take shape.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short EUR/USD since April 9, with the ratio currently standing at -1.88.
  • Interim Resistance: 1.1520 (61.8% expansion) to 1.1532 (February high)
  • Interim Support: 1.0970 (38.2% expansion) to 1.1000 (50% retracement)

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)

4Q A 2014

02/13/2014 10:00 GMT

0.8%

0.9%

-2

-22

4Q 2014 Euro-Zone Gross Domestic Product (GDP)

EUR/USD Chart

The euro-area economy grew at an annualized rate of 0.9% during the last three-months of 2014 following a 0.8% expansion during the previous quarter. The better-than-expected print was driven by a Germany, with Europe’s largest economy expanding an annualized 1.4% during the same period. The extraordinary efforts taken by the European Central Bank (ECB) may continue to prop up the monetary union as the non-standard measures continue to work their way through the real economy, and the central bank may continue to embark on its easing cycle throughout 2015 in an effort to encourage a stronger recovery. The Euro struggled to hold its ground despite the better-than-expected print, with EUR/USD slipping below the 1.1400 handle and closing the North American trade at 1.1382.

--- 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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