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Upbeat Euro-Zone 3Q GDP Report to Fuel Larger EUR/USD Rebound

Upbeat Euro-Zone 3Q GDP Report to Fuel Larger EUR/USD Rebound

2015-11-13 05:00:00
David Song, Shuyang Ren,
Share:

- Euro-Zone 3Q GDP to Expand Annualized 1.7%- Fastest Pace of Growth Since 3Q 2011.

- Will Faster Growth Dampen Bets for Lower ECB Deposit-Rate?

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 3Q Gross Domestic Product (GDP) report may heighten the appeal of the single currency and spur a more meaningful rebound in EUR/USD as the monetary union is expected to expand an annualized 1.7% after growing 1.5% during the three-months through June.

What’s Expected:

EUR/USD Euro-Zone GDP

Click Here for the DailyFX Calendar

Why Is This Event Important:Even though the European Central Bank (ECB) endorses a dovish outlook for monetary policy, signs of a more sustainable recovery may prompt the Governing Council to stick to its current stance at the December 3 interest rate decision, and the Euro may trade on a firmer footing over the coming days as market participants scale back bets for lower interest rates.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Sentix Investor Confidence (NOV)

13.1

15.1

Business Climate Indicator (OCT)

0.31

0.44

Employment (QoQ) (2Q)

--

0.3%

Improved confidence accompanied by increased lending to small and medium-sized enterprises (SME) may generate a meaningful pickup in the growth rate, and a positive development may encourage the ECB to sit on the sidelines throughout the remainder of the year as the non-standard measures continue to work their way through the real economy.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Retail Sales (MoM) (SEP)

0.2%

-0.1%

Consumer Confidence (OCT A)

-7.4

-7.7

Trade Balance s.a. (AUG)

22.1B

19.8B

However, the ECB may take further steps to insulate the monetary union amid the slowing demand from home and abroad, and a weaker-than-expected GDP figure may fuel bets for a major announcement in December as Governing Council largely removes the floor on interest rates.

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How To Trade This Event Risk(Video)

Bullish EUR Trade: 3Q GDP Climbs Annualized 1.7% 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: Euro-Zone Growth Rate Fails to Meet 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.

Potential Price Targets For The Release

EURUSD Daily

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Failure to retain the upward trend from earlier this year raises the risk for a resumption of the long-term bearish trend for EUR/USD, and the pair may continue to give back the rebound from April (1.0461) amid the deviating paths for monetary policy between the ECB/FOMC.
  • DailyFX Speculative Sentiment Index (SSI)shows the retail crowd remains net-long EUR/USD since November 3, but the ratio remains off of recent extremes as it sits at +1.25, with 55% of traders long.
  • Interim Resistance: 1.1052 (November high) to 1.1090 (50% retracement)
  • Interim Support: Interim Support: 1.0380 (78.6% expansion) to 1.0410 (61.8% expansion)

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)

2Q A 2015

08/14/2015 09:00 GMT

1.3%

1.2%

+11

-31

2Q 2015 Euro-Zone Gross Domestic Product (GDP)

EUR/USD Chart

The Euro-Zones 2Q Gross Domestic Product (GDP) report fell short of market expectations as the economy grew an annualized 1.2% in the second quarter after expanding 1.0% during the first three-months of 2014. Despite marking the fastest pace of growth since the fourth-quarter of 2011, the ongoing weakness in the real economy may push the European Central Bank (ECB) to further embark on its easing cycle as it struggles to achieve its one and only mandate for price stability. Nevertheless, the market reaction to the lackluster GDP print was short-lived, with EUR/USD pushing above the 1.1150 region ahead of the North American, but the single-currency struggled to hold its ground as the pair closed the day at 1.1107.

Read More:

EUR/JPY on the Cusp of Important Move

Price & Time: EUR/USD - To Bounce or Not To Bounce

USD/JPY Risks Larger Pullback as Bull-Flag Formation Takes Shape

--- 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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