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EUR/USD Rebound to Gather Pace on Lackluster U.S. GDP, PCE

EUR/USD Rebound to Gather Pace on Lackluster U.S. GDP, PCE

David Song, Shuyang Ren,


- 4Q U.S. GDP to Expand Annualized 0.8%- Slowest Rate of Growth Since 1Q 2015.

- Core Personal Consumption Expenditure (PCE) to Slow for Second Consecutive Quarter.

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

The advance 4Q U.S. Gross Domestic Product (GDP) report may produce near-term headwinds for the greenback and fuel a larger rebound in EUR/USD as signs of a slowing recovery dampens bets for a Fed rate-hike in the first-half of 2016.

What’s Expected:


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Why Is This Event Important:

Even though the Federal Open Market Committee (FOMC) appears to be on course to further normalize monetary policy over the coming months, softer growth accompanied by a downtick in the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, may encourage the central bank to endorse a wait-and-see approach at the next interest rate decision on March 16 in an effort to stem the downside risks surrounding the U.S. economy.

Expectations: Bearish Argument/Scenario

Durable Goods Orders (DEC P)-0.7%-5.1%
Advance Retail Sales (DEC)-0.1%-0.1%
Average Hourly Earnings (YoY) (DEC)2.7%2.5%

Subdued wages paired with the slowdown in private-sector consumption may spur a marked slowdown in the growth rate, and a dismal GDP report may undermine the bullish sentiment surrounding the greenback as it drags on interest rate expectations.

Risk: Bullish Argument/Scenario

Consumer Confidence (JAN)96.598.1
New Home Sales (MoM) (DEC)2.0%10.8%
Existing Home Sales (MoM) (DEC)9.2%14.7%

Nevertheless, improved confidence paired with the pickup in the housing market may provide a boost to the economy, and a positive development may heighten the appeal of the dollar as it puts increased pressure on the FOMC to implement higher borrowing-costs sooner rather than later.

How To Trade This Event Risk(Video)

Bearish USD Trade: 4Q GDP, Core PCE Fall Short of Market Forecasts

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

Bearish USD Trade: U.S. Economy Expands Annualized 0.8% or Greater

  • Need red, five-minute candle to favor a short EURUSD trade.
  • Implement same setup as the bearish dollar trade, just in the opposite direction.

Potential Price Targets For The Release


EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Even though the diverging paths for monetary policy encourages a long-term bearish outlook for EUR/USD, the pair stands at risk for a larger correction as price & the Relative Strength Index (RSI) struggle to preserve the bearish formations carried over from the previous month.
  • The DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-short EUR/USD since January 25, but the ratio appears to be working its way back towards recent extremes as it slips to -1.80, with 36% 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)

Read More:

GBP/USD – All About 1.4400

AUDJPY Following 2016 Trade Plan- Time to Reload

USD/JPY Technical Analysis: Upside Risks Heightened Before BoJ (Levels)

COT-Trend Traders Hold Record Net Short Position in Copper

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

PeriodData ReleasedEstimateActualPips ChangePips Change

3Q A


10/29/2015 13:30 GMT1.6%1.5%-34+16

3Q 2015 U.S. Gross Domestic Product (GDP)


The advance 3Q Gross Domestic Product (GDP) report missed market expectations as the growth rate increased an annualized 1.5% following the 3.9% during the three-months through June. A deeper look at the report showed a similar story for Personal Consumption, with the figure showing a 3.2% advance amid forecasts for a 3.3% clip, while the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, slowed to an annualized 1.3% versus expectations for a 1.4% reading. Despite the softer-than-expected GDP report, it seems as though the Federal Open Market Committee (FOMC) will stay on course to normalize monetary policy as Chair Janet Yellen anticipates a stronger recovery in the second-half of 2015. The initial spike in EUR/USD was short-lived as the pair worked its way down towards the 1.0925 region following the data, but the move largely unwound during the North American trade as the pair ended the day at 1.0974.

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

To contact David, e-mail Follow me on Twitter at @DavidJSong.

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