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Strong US 3Q GDP to Fuel EUR/USD Selloff- April Low on Tap?

Strong US 3Q GDP to Fuel EUR/USD Selloff- April Low on Tap?

2015-11-24 08:00:00
David Song, Shuyang Ren,
Share:

- 3Q U.S. GDP to Increase Annualized 2.1%- Second Highest Print for 2015.

- Core Personal Consumption Expenditure (PCE) to Expand 1.3%- Slowest Pace Since 1Q 2015.

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

The preliminary U.S. 3Q Gross Domestic Product (GDP) report may heighten the appeal of the greenback and spark fresh monthly lows in EUR/USD as signs of a stronger recovery fuels bets for a December Fed rate-hike.

What’s Expected:

EUR/USD US 3Q GDP

Click Here for the DailyFX Calendar

Why Is This Event Important:

With the U.S. economy approaching full-employment, a marked upward revision in the growth rate may keep the Federal Open Market Committee (FOMC) on course to remove the zero-interest rate policy (ZIRP) in 2015 as Chair Janet Yellen remains confident in achieving the 2% inflation target over the policy horizon.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Consumer Credit (SEP)

$18.000B

$28.918B

Construction Spending (MoM) (SEP)

0.5%

0.6%

Existing Home Sales (MoM) (SEP)

1.5%

4.7%

The expansion in private-sector credit accompanied by the pickup in housing activity may generate a stronger-than-expected GDP print, and a positive development may spark a bullish reaction in the greenback as it boosts interest rate expectations.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Personal Spending (SEP)

0.2%

0.1%

Industrial Production (MoM) (SEP)

-0.2%

-0.2%

Advance Retail Sales (MoM) (SEP)

0.2%

0.1%

Nevertheless, the ongoing slack in household spending may drag on economic activity as it remains one of the leading drivers of growth, and a lackluster GDP figure may spur another 9-1 split at the Fed’s December 16 interest rate decision as the majority remains appears to be in no rush to normalize monetary policy.

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How To Trade This Event Risk(Video)

Bullish USD Trade: 3Q GDP Climbs Annualized 2.1% or Greater

  • Need to see red, five-minute candle following the GDP report to consider a short trade on EURUSD.
  • If market reaction favors a long 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.

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Potential Price Targets For The Release

EURUSD Daily

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • EUR/USD stands at risk of giving back the advance from March (1.0461) as the pair slips to fresh monthly lows and continues to search for support; April low (1.0519) stands on the radar amid the bearish formation in price & the Relative Strength Index (RSI).
  • DailyFX Speculative Sentiment Index (SSI)shows the retail crowd remains net-long EUR/USD since November 19, and the ratio appears to be working its way back towards recent extremes as it climbs to +1.38, with 58% of traders now 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 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)

2Q S

2015

08/27/2015 12:30 GMT

3.2%

3.7%

-56

-43

2Q 2015 U.S. Gross Domestic Product (GDP)

EUR/USD Chart

The preliminary 2Q Gross Domestic Product (GDP) report fueled expectations for a faster recovery as the growth rate increased an annualized 3.7% versus an initial forecast for a 2.3% expansion. The pickup in economic activity may encourage the Federal Open Market Committee (FOMC) to normalize monetary in 2015 as Fed Chair Janet Yellen sees the central bank on its way to achieve its dual mandate for full-employment and price stability. The greenback gained ground following the GDP print, with EUR/USD pushing below the 1.1250 region to end the North American session at 1.1242.

Read More:

GBP/USD November Rebound at Risk on Dovish BoE Testimony

COT - Largest AUD Net Spec Short Position Since March

Webinar: Dollar Crosses at Key Juncture Ahead of US Holiday

USD/JPY Technical Analysis: Shaken, Not Stirred Above 122

--- 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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