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Upbeat 4Q GDP to Impede on EUR/USD Recovery, Fuel Bet for June-Hike

Upbeat 4Q GDP to Impede on EUR/USD Recovery, Fuel Bet for June-Hike

David Song, Strategist

- U.S. 4Q GDP to Expand Annualized 2.2%; Personal Consumption to Increase 2.5%.

- Core Personal Consumption Expenditure (PCE) to Slow to 1.4%- Slowest Since 4Q 2015.

For more updates, sign up for David's e-mail distribution list.

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 should the release cast a weakened outlook for growth and inflation.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

However, with the Atlanta Fed’s GDP model forecasting a 2.9% rate of growth, a set of better-than-expected data prints may heighten the appeal of the U.S. dollar as the Federal Reserve appears to be on course to further normalize monetary policy in 2017. Even though the GDP reports are considered to be one of the most backward-looking figures, a positive development may boost the bullish sentiment surrounding the greenback especially as Fed Fund Futures now highlight a greater than 70% probability for a June rate-hike.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Existing Home Sales (MoM) (DEC)

-1.6%

-2.8%

Advance Retail Sales (DEC)

0.7%

0.6%

Non-Farm Payrolls (DEC)

175K

156K

Easing job growth accompanied by the slowdown in private-sector consumption may generate a weak GDP print, and a dismal development may produce a bearish reaction in the U.S. dollar as it drags on interest rate expectations.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

NFIB Small Business Optimism (DEC)

99.5

105.8

ISM Non-Manufacturing (DEC)

56.8

57.2

ISM Manufacturing (DEC)

53.8

54.7

Nevertheless, improved confidence paired with the pickup in business outputs may set the stage for a positive outcome, and signs of a stronger recovery may put increased pressure on the Fed to implement higher borrowing-costs as the central bank is ‘closing in’ on its dual mandate.

For More Updates, Join DailyFX Currency Analyst David Song for LIVE Analysis!

How To Trade This Event Risk(Video)

Bearish USD Trade: 4Q GDP, Core PCE Disappoint

  • Need a green, five-minute candle following the GDP report to consider a long EUR/USD position.
  • If market reaction favors a bearish dollar trade, buy EUR/USD 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. Economy Beats Market Forecast

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

Potential Price Targets For The Release

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using Trading View

  • Failure to break/close above the Fibonacci overlap around 1.0780 (100% expansion) to 1.0790 (38.2% expansion) may bring the downside targets back into focus especially as the Relative Strength Index (RSI) appears to be responding to the downward trend carried over from 2015; may see a bearish trigger unfold over the days ahead should the oscillator fail to preserve the bullish formation from late-November.
  • Interim Resistance: 1.0780 (100% expansion) to 1.0790 (38.2% expansion)
  • Interim Support: 1.0340 (2017-low) and 1.0370 (38.2% expansion)

Check out the short-term technical levels that matter for EUR/USD heading into the report!

Impact that the U.S. GDP reporthas had on EUR/USD during the previous quarter

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

3Q

2016

10/28/2016 12:30 GMT

2.6%

2.9%

+1

+55

3Q 2016 U.S. Gross Domestic Product (GDP)

EUR/USD 10-Minute

EUR/USD Chart

After growing an annualized 1.4% in the second-quarter of 2016, the U.S. economy grew 2.9% during the three-months through September, while Personal Consumption increased 2.1% in the same period amid forecasts for a 2.6% print. At the same time, the core Personal Consumption Expenditure (PCE), the Federal Reserve’s preferred gauge for inflation, tracked at an annualized pace of 1.7% versus expectations for a 1.6% clip, and signs of a stronger-than-expected recovery may push the Federal Reserve to further normalize monetary policy over the coming months especially as the economy approaches ‘full-employment.’ The series of mixed data prints produced a limited market reaction in EUR/USD, with the greenback struggling to hold its ground throughout the North American trade as the pair ended the day at 1.0980.

Get our top trading opportunities of 2016 HERE

Read More:

S&P 500 Technical Analysis: Short-term Chart Pattern in View

New Zealand Dollar Gains as CPI Data Boosts RBNZ Rate Hike Bets

Silver Prices: Trading Levels in Play

Gold Off Key Resistance- Trump, US GDP to Determine Depth of Correction

--- Written by David Song, Currency Analyst

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.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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