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Upward Revision to 1Q U.S. GDP to Hamper EUR/USD Rebound

Upward Revision to 1Q U.S. GDP to Hamper EUR/USD Rebound

2016-05-27 08:00:00
David Song, Strategist
Share:

- U.S. GDP to Expand Annualized 0.9%- Slowest Pace of Growth Since 1Q 2015.

- Core PCE to Grow Annualized 2.1%- Highest Reading Since 1Q 2012.

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

An upward revision in the preliminary 1Q Gross Domestic Product (GDP) report may trigger near-term selloff in EUR/USD as signs of a stronger recovery provide the Federal Open Market Committee (FOMC) with greater scope to implement higher borrowing-costs.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

With the U.S. economy approaching ‘full-employment,’ a faster rate of growth may encourage a greater number of Fed officials to vote for a rate-hike at the next quarterly meeting in June as the central bank sees a sustainable recovery over the policy horizon.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Consumer Credit (MAR)

$16.000B

$29.674B

Pending Home Sales (MoM) (MAR)

0.5%

1.4%

Existing Home Sales (MoM) (MAR)

3.9%

5.1%

The pickup in private-sector lending accompanied by the expansion in the housing market may prop up the growth rate, and a positive development may boost the appeal of the greenback as it puts increased pressure on the FOMC to further normalize monetary policy sooner rather than later.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Personal Spending (MAR)

0.2%

0.1%

Advance Retail Sales (MoM) (MAR)

0.1%

-0.3%

Industrial Production (MoM) (MAR)

-0.1%

-0.6%

Nevertheless, slowing consumption paired with waning business outputs may drag on the GDP report, and a lackluster print may drag on the dollar as market participants push out bets for a Fed rate-hike.

How To Trade This Event Risk(Video)

Bullish USD Trade: 1Q GDP Climbs Annualized 0.9% or Greater

  • Need red, five-minute candle following the report to consider a short EUR/USD position.
  • If market reaction favors a bullish dollar trade, sell EUR/USD with two separate position.
  • Set stop at the near-by swing high/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 USD Trade: Growth Report Falls Short of Market Forecast

  • Need green, five-minute candle to favor a long EUR/USD trade.
  • Implement same strategy as the bullish dollar trade, just in reverse.

Potential Price Targets For The Release

EURUSD Daily

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • A break/close below the Fibonacci overlap around 1.1090 (50% retracement) to 1.1110 (50% retracement) may pave the way for a larger decline in EUR/USD as it coincides with the upward trendline carried over from December.
  • Key Resistance: 1.1760 (61.8% retracement) to 1.1810 (38.2% retracement)
  • Key Support: Interim Support: 1.0380 (78.6% 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 the U.S. Gross Domestic Product (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 P

2015

02/26/2016 12:30 GMT

0.4%

1.0%

-41

-92

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

EUR/USD Chart

The preliminary Gross Domestic Product (GDP) was unexpectedly revised higher to reflect an annualized 1.0% rate of growth, while Personal Consumption increased 2.0% during the same period amid an initial forecast for a 2.2% expansion. At the same time, the core Personal Consumption Expenditure, the Fed’s preferred gauge for inflation, increased an annualized 1.7% during the last three-months of 2015 amid projections for a 1.5% print. The dollar gained ground following the better-than-expected GDP report, with EUR/USD slipping below the 1.1000 handle to close the day at 1.0924.

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Read More:

EUR/JPY Technical Analysis: Prior Support, New Resistance

US DOLLAR Technical Analysis: A Fitting Finish To May

USD/JPY Technical Analysis: Clearly Defined Support & Resistance To Help Traders

GBP/USD Successful Re-Test of Former Resistance Line

--- Written by David Song, Currency Analyst

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

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