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EUR/USD to Eye Topside Targets on Disappointing 1Q U.S. GDP Report

EUR/USD to Eye Topside Targets on Disappointing 1Q U.S. GDP Report

2016-04-28 08:00:00
David Song, Currency Strategist
Share:

- 1Q U.S. GDP to Expand Annualized 0.6%- Slowest Rate of Growth Since 1Q 2015.

- Core Personal Consumption Expenditure (PCE) to Increase for First Time in Three Quarters.

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

The 1Q U.S. Gross Domestic Product (GDP) report may dampen the appeal of the greenback and spark a near-term advance in EUR/USD as signs of a slowing recovery weigh on interest-rate expectations.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

A soft growth figure may encourage the Federal Reserve to retain its current policy throughout most of 2016 amid the ongoing 9 to 1 split within the central bank, but a marked rebound in the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, may put increased pressure on Chair Janet Yellen and Co. to further normalize monetary policy over the coming months especially as the U.S. economy approaches ‘full-employment.’

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Durable Goods Orders (MAR P)

1.9%

0.8%

Advance Retail Sales (MAR)

0.1%

-0.3%

Manufacturing Production (SIC) (MAR)

0.1%

-0.3%

Slowing business outputs along with the weakness in private-sector consumption may drag on the growth rate, and a dismal GDP report may produce headwinds for the dollar as market participants push out bets for the next Fed rate-hike.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Existing Home Sales (MoM) (MAR)

3.9%

5.1%

Non-Farm Payrolls (MAR)

205K

215K

Average Hourly Earnings (YoY) (MAR)

2.2%

2.3%

Nevertheless, the pickup in housing accompanied by ongoing improvement in labor-market dynamics may help to boost economic activity, and a positive development may generate a bullish reaction in the U.S. dollar as it puts increased pressure on the Federal Reserve to further normalize monetary policy sooner rather than later.

How To Trade This Event Risk(Video)

Bearish USD Trade: 1Q GDP Report Warns of Slowing Recovery

  • 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.

Bullish USD Trade: U.S. Expands Annualized 0.6% or Greater, Core PCE Rebounds

  • 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

EURUSD Daily

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • EUR/USD may continue to consolidate going into the end of the month as it remains stuck within a near-term triangle/wedge formation, but the continuation pattern may ultimately give way to a further advance in the exchange rate especially as the Relative Strength Index (RSI) largely preserves the bullish trend carried over from March 2015.
  • Interim Resistance: 1.1510 (50% retracement) to 1.1520 (61.8% expansion)
  • Interim Support: Interim Support: 1.0370 (38.2% expansion) to 1.0410 (61.8% expansion)

Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the "Traits of Successful Traders" series.

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)

4Q A

2015

01/29/2016 12:30 GMT

0.8%

0.7%

-81

-88

4Q 2015 U.S. Gross Domestic Product (GDP)

EUR/USD Chart

The advance Gross Domestic Product (GDP) report fell just shy of market expectations as the growth rate increased an annualized 0.7% in the fourth-quarter, while Personal Consumption increased 2.2% amid forecasts for a 1.8% print. At the same time, the core Personal Consumption Expenditure (PCE) came largely in-line with market projections as it narrowed to an annualized 1.2% from 1.4% during the last three-months of 2015. The better-than-expected reading for private-spending may put increased pressure on the Federal Open Market Committee (FOMC) to further normalize monetary policy over the coming months as the central bank looks for a ‘consumer-led’ recovery in 2016. Despite the mixed prints, the greenback extended the advance from the overnight session, with EUR/USD slipping below the 1.0850 region to end the day at 1.0828.

Get our top trading opportunities of 2016 HERE

Read More:

US DOLLAR Technical Analysis: Retesting 2016 Lows

EUR/JPY Technical Analysis: The Negative Rate Trend Line is Back

EUR/USD and USD/CHF Outside Weeks at Well-Defined Levels

Big Test For Spoos, Big Test For the Markets

--- Written by David Song, Currency Analyst

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

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