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EUR/USD to Eye July Low on Strong 2Q U.S. GDP Report

EUR/USD to Eye July Low on Strong 2Q U.S. GDP Report

2015-07-30 08:00:00
David Song, Shuyang Ren,
Share:

- U.S. GDP to Rebound Annualized 2.5% After Contracting During First Three-Months of 2015.

- Personal Consumption to Expand 2.7% to Mark First Pickup Since 4Q 2014.

Trading the News: U.S. Gross Domestic Product (GDP)

The advance 2Q U.S. Gross Domestic Product (GDP) report may boost the appeal of the greenback and spark a further decline in EUR/USD as signs of a stronger recovery fuels expectations for a 2015 Fed rate hike.

What’s Expected:

EUR/USD 2Q GDP

Click Here for the DailyFX Calendar

Why Is This Event Important:

Despite the unanimous vote to retain the current policy in July, a marked rebound in the growth rate may put increased pressure on the Federal Reserve to remove the zero-interest rate policy (ZIRP) sooner rather than later as the committee remains confident in achieving the 2% target for inflation over the policy horizon.

For LIVE SSI Updates Ahead of the U.S. GDP Print, Join DailyFX on Demand

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Existing Home Sales (MoM) (JUN)

0.9%

3.2%

Housing Starts (MoM) (JUN)

6.7%

9.8%

ISM Manufacturing (JUN)

53.2

53.5

Increased production paired with the pickup in building activity may encourage a strong GDP print, and a faster rate of growth may heighten the bullish sentiment surrounding the greenback as it boosts interest rate expectations.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Consumer Confidence (JUL)

100.0

90.9

Advance Retail Sales (MoM) (JUN)

0.3%

-0.3%

Wholesale Trade Sales (MoM) (MAY)

0.9%

0.3%

Nevertheless, waning confidence along with the ongoing slack in private-sector consumption may drag on the growth rate, and fears of a slower recovery may prompt the FOMC to further delay its normalization cycle in an effort to stem the downside risks surrounding the U.S. economy.

How To Trade This Event Risk(Video)

Bullish USD Trade: 2Q GDP Highlights Stronger Recovery

  • Need to see red, five-minute candle following the GDP report to consider a short trade on EURUSD.
  • If market reaction favors a bullish dollar trade, sell EURUSD with two separate position.
  • Set stop at the near-by swing high/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.

Bearish USD Trade: Growth Rate Falls Short of Market Forecast

  • Need green, five-minute candle to favor a long EURUSD trade.
  • Implement same setup as the bullish dollar trade, just in the opposite direction.

Potential Price Targets For The Release

EURUSD Daily

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • EUR/USD may extend the decline from mid-June as the pair continues to carve lower-highs in July; need a break of upward trendline from back in March to see a resumption of the long-term bearish outlook.
  • DailyFX Speculative Sentiment Index (SSI)shows the retail crowd remains net-short EUR/USD since March 9, but the ratio remains off of recent extremes as it sits at -1.73 with 37% of traders long.
  • 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:

USDCAD Plummets Following US Oil Inventories Data

NZDUSD Breakout or Fake-Out? Key Levels to Know Ahead of FOMC, US GDP

Impact that the U.S. GDP report has had on EUR/USD during the last release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

1Q A

2015

04/29/2015 12:30 GMT

1.0%

0.2%

+52

+117

1Q 2015 U.S. Gross Domestic Product (GDP)

EUR/USD Chart

The U.S. economy barely grew in the first-quarter of 2015 as the growth rate climbed an annualized 0.2% after expanding 2.2% in the three-months through December. Meanwhile, Personal Consumption increased 1.9% versus expectations for a 1.7% clip, while the core Personal Consumption Expenditure (PCE) slowed to an annualized 0.9% from 1.1% in the fourth-quarter. With seasonal/transitory factors largely weighing on economic activity, it seems as though the Federal Reserve will stay on course to raise the benchmark interest rate later this year as the central bank anticipates a stronger recovery in the months ahead. The greenback lost ground following the weak GDP print, with EUR/USD pushing above the 1.1110 handle to end the North American session at 1.1127.

--- Written by David Song, Currency Analyst and Shuyang Ren

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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