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EUR/USD to Face Larger Pullback on Dismal 4Q Euro-Zone GDP Report

EUR/USD to Face Larger Pullback on Dismal 4Q Euro-Zone GDP Report

David Song, Shuyang Ren,

- Euro-Zone 4Q GDP to Expand Annualized 1.5%.

- Euro-Zone Growth to Slow for First Time Since 2Q 2014.

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 4Q Gross Domestic Product (GDP) report may produce near-term headwinds for the Euro as signs of a slowing recovery puts increased pressure on the European Central Bank (ECB) to further embark on its easing cycle at the March 10 meeting.

What’s Expected:

EUR/USD Euro-Zone GDP

Click Here for the DailyFX Calendar

Why Is This Event Important:The ECB may enlist more non-standard measures to further insulate the monetary union amid the disinflationary environment across the major industrialized economies, and President Mario Draghi may continue to push monetary policy into unchartered territory in an effort to achieve the central bank’s one and only mandate for price stability.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

M3 Money Supply (YoY) (DEC)

5.2%

4.7%

Business Climate Indicator (JAN)

0.40

0..29

Construction Output (MoM) (NOV)

--

0.8%

Waning confidence accompanied by the slowdown in private-sector lending may drag on the growth rate, and a dismal 4Q GDP report may dampen the appeal of the single currency as it boosts bets for additional monetary support.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Retail Sales (MoM) (DEC)

0.3%

0.3%

Unemployment Rate (DEC)

10.5%

10.4%

Trade Balance s.a. (NOV)

21.0B

22.7B

Nevertheless, improved demand from home & abroad may encourage a stronger-than-expected GDP print, and signs of a more robust recovery may prompt the Governing Council to endorse a wait-and-see approach in March amid the bright signs coming out of the economy.

How To Trade This Event Risk(Video)

Bearish 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.

Bullish 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

  • EUR/USD stands at risk for a near-term pullback as the Relative Strength Index (RSI) struggles to push into overbought territory, but the pair may work its way back towards the August high (1.1713) as price & the momentum indicator preserve the bullish formations from earlier this year.
  • Interim Resistance: 1.1510 (50% retracement) to 1.1520 (61.8% expansion)
  • Interim Support: Interim Support: 1.0380 (78.6% expansion) to 1.0410 (61.8% expansion)
EUR/USD DailyFX SSI

The DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-short EUR/USD since February 1, but the ratio remains off of recent extremes as it narrows to -1.71, with 37% of traders now long.

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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)

3Q A 2015

11/13/2015 10:00 GMT

1.7%

1.6%

+17

+7

3Q 2015 Euro-Zone Gross Domestic Product (GDP)

EUR/USD to Face Larger Pullback on Dismal 4Q Euro-Zone GDP Report

The Euro-Zone’s 3Q Gross Domestic Product (GDP) report fell short of market expectations, with the economy growing another annualized 1.6% during the three-months through September. Despite the fastest pace of growth since 2011, the European Central Bank (ECB) looks poised to further embark on its easing cycle over the coming months as President Mario Draghi keeps the door open to implement more non-standard measures. Nevertheless, the Euro bounced back from the session lows following the limited market reaction, with EUR/USD climbing to the 1.0800 region ahead of the North American session.

Read More:

GBP/USD – Lots of Questions

US Crude Oil – Global Inflection Point?

EUR/USD Bullish Interpretation is Valid While above 1.1050

USD/JPY Technical Analysis: 14-Month Low Revives Reversal Focus

--- 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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