- U.S. GDP Report to Show First Contraction in Growth Since 1Q 2014.
- Core Personal Consumption Expenditure (PCE) to Hold at Lowest Level Since 4Q 2010.
Trading the News: U.S. Gross Domestic Product (GDP)
A marked downward revision in the preliminary 1Q U.S. Gross Domestic Product (GDP) report may drag on the greenback and spur a near-term rebound in EUR/USD as the Federal Reserve looks to carry its zero-interest rate policy into the second-half of 2015.
What’s Expected:
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Why Is This Event Important:
Even though the Fed pledges to look past the economic weakness drive by transitory factors, a larger-than-expected contraction in the growth rate may spur a further delay in the central bank’s normalization cycle as it undermines expectations for a stronger recovery.
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Expectations: Bearish Argument/Scenario
| Release | Expected | Actual |
|---|---|---|
| Wholesale Trade Sales (MoM) (MAR) | 0.5% | -0.2% |
| Trade Balance (MAR) | -$41.7B | -$51.4B |
| Advance Retail Sales (MoM) (MAR) | 1.1% | 0.9% |
Waning demand from home and abroad may become a growing concern for the Fed amid the ongoing slack in the real economy, and a dismal GDP report may dampen the appeal of the greenback as it drags on interest rate expectations.
Risk: Bullish Argument/Scenario
| Release | Expected | Actual |
|---|---|---|
| Consumer Credit (MAR) | $15.800B | $20.523B |
| Existing Home Sales (MAR) | 3.1% | 6.1% |
| Manufacturing Production (SIC) (MAR) | 0.1% | 0.1% |
Nevertheless, increased business outputs paired with the expansion in private-sector credit may offer a better-than-expected GDP print, and prospects for a stronger recovery may spur a bullish reaction in the dollar as the Fed remains on course to remove the zero-interest rate policy (ZIRP) in 2015.
How To Trade This Event Risk(Video)
Bearish USD Trade: Growth Rate Contracts 0.9% or Greater
- Need to see green, five-minute candle following the GDP report to consider a long trade on EURUSD.
- If market reaction favors a short dollar trade, buy EURUSD with two separate position.
- Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward.
- Move stop to entry on remaining position once initial target is hit; set reasonable limit.
Bullish USD Trade: 1Q GDP Report Exceeds Market Forecast
- Need red, five-minute candle to favor a short EURUSD trade.
- Implement same setup as the bearish dollar trade, just in reverse.
Potential Price Targets For The Release
EURUSD Daily
Chart - Created Using FXCM Marketscope 2.0
- Failure to preserve the near-term downward trending channel may generate a larger rebound in EUR/USD and spur a consolidation phase in the days ahead.
- DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short EUR/USD since March 9, with the ratio currently sitting at -1.66.
- Interim Resistance: 1.1180 (23.6% expansion) to 1.1210 (61.8% retracement)
- Interim Support: 1.0790 (50% expansion) to 1.0800 (23.6% expansion)
Read More:
USD/JPY Bullish Formation Favored Despite Overbought RSI Signal
AUD Resuming Downtrend Backed by Sentiment & Volume Analysis
Impact that the U.S. GDP report has had on EUR/USD during the last release
| Period | Data Released | Estimate | Actual | Pips Change | Pips Change |
|---|---|---|---|---|---|
4Q P 2014 | 02/27/2015 13:30 GMT | 2.0% | 2.2% | +1 | +47 |
4Q 2014 U.S. Gross Domestic Product (GDP)
Even though the preliminary 4Q U.S. GDP print was revised down to an annualized 2.2% from an initial forecast of 2.6%, the print still managed to exceed market expectations for a 2.0% rate of growth. At the same time, Personal Consumption was also revised down to 4.2% from 4.3%, while the core Personal Consumption Expenditure (PCE) remained unchanged at 1.1% during the same period. The better-than-expected GDP reading may keep the Fed on course to normalize monetary policy in 2015 as the central bank anticipates a stronger recovery in the year ahead. The greenback strengthened following the report, with EUR/USD slipping below the 1.1200 handle to end the North American session at 1.1189.
--- 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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