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U.S. GDP Report: Slowing Core PCE to Curb EUR/USD Weakness

U.S. GDP Report: Slowing Core PCE to Curb EUR/USD Weakness

David Song, Strategist

- U.S. GDP to Expand Annualized 2.6%- Fastest Pace of Growth Since 3Q 2016.

- Core PCE to Narrow to 0.7% Per Annum- Lowest Reading Since 1Q 2009.

-Sign up and Join the DailyFX Roundtable LIVE to Cover the U.S. GDP Report.

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

U.S. GDP

EUR/USD may continue to give back the advance from earlier this month as the U.S. 2Q Gross Domestic Product (GDP) report is expected to show a pickup in the growth rate.

Why Is This Event Important:

However, a material slowdown in the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, may overshadow an uptick in GDP as the central bank continues to note ‘market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.’ Even though the Federal Open Market Committee (FOMC) ‘expects to begin implementing its balance sheet normalization program relatively soon,’ waning expectations for a December rate-hike may continue to drag on the greenback especially as Chair Janet Yellen warns ‘the federal funds rate would not have to rise all that much further to get to a neutral policy stance.

Impact that the U.S. GDP report has 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)

1Q A

2017

04/28/2017 12:30:00 GMT

1.0%

0.7%

-16

-29

1Q 2017 U.S. Gross Domestic Product (GDP)

EUR/USD 15-Minute

EUR/USD Chart

DailyFX 3Q Forecasts Are Now Available

The U.S. economy grew an annualized 0.7% in the first three-months of 2017, while the gauge for household consumption increased 0.3% during the same period amid forecasts for a 0.9% rise. Nevertheless, the core Personal Consumption Expenditure, the Fed’s preferred gauge for inflation, climbed to 2.0% per annum to mark the fastest pace of growth since the first-quarter of 2016. Despite the below-forecast GDP print, the U.S. dollar gained ground amid signs of faster price growth, with EUR/USD dipping below the 1.0900 handle to end the day at 1.0898.

How To Trade This Event Risk(Video)

Bullish USD Trade: GDP, Core PCE Exceed Market Expectations

  • Need a red, five-minute candle follow the data prints to consider a short EUR/USD position.
  • If the market reaction favors a bullish dollar position, short EUR/USD with two separate lots.
  • Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward.
  • Move stop to breakeven on remaining position once initial target is met, set reasonable limit.

Bearish USD Trade: Slowing Inflation Curbs Bets for December Fed Rate-Hike.

  • Need a green, five-minute EUR/USD candle to consider a short dollar position.
  • Implement the same approach as the bullish dollar position, just in reverse.

Potential Price Targets For The Release

EUR/USD Daily Chart

EUR/USD Daily Chart

Chart - Created Using Trading View

  • Keep in mind the broader outlook for EUR/USD remains constructive following the market reaction to the FOMC July interest rate decision, with the pair initiating a series of higher-highs, but the exchange rate may continue to pull back from the fresh 2017-high (1.1777) as the Relative Strength Index (RSI) appears to be coming off of overbought territory.
  • Failure to hold above the 1.1670 (78.6% expansion) hurdle may spur a move back towards the 1.1580 (100% expansion) region, with the next downside area of interest coming in around 1.1480 (78.6% expansion) followed by the 1.1400 (61.8% expansion) handle.
  • Interim Resistance: 1.1810 (61.8% retracement) to 1.1860 (161.8% expansion)
  • Interim Support: 1.0980 (50% retracement) to 1.1020 (50% expansion)

EUR/USD Sentiment

EUR/USD Sentiment

Track Retail Sentiment with the New Gauge Developed by DailyFX Based on Trader Positioning

Retail trader data shows 29.6% of traders are net-long EUR/USD with the ratio of traders short to long at 2.38 to 1. In fact, traders have remained net-short since April 18 when EUR/USD traded near 1.06665; price has moved 9.3% higher since then. The number of traders net-long is 11.2% higher than yesterday and 8.2% higher from last week, while the number of traders net-short is 14.8% lower than yesterday and 5.3% lower from last week.

--- 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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