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

- 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:

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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

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

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

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)

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Impact the U.S. Gross Domestic Product (GDP) report has had on EUR/USD during the last release

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

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:

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--- Written by David Song, Currency Analyst

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

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