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EUR/USD Resilience at Risk on Strong 4Q U.S. GDP Report

EUR/USD Resilience at Risk on Strong 4Q U.S. GDP Report

David Song, Strategist

- 4Q U.S. Gross Domestic Product (GDP) to Expand Annualized 2.7% Versus Initial Forecast of 2.5%. Core Personal Consumption Expenditure (PCE) to Hold Steady at 1.9%.

- EUR/USD Preserves Bullish Sequence. 2018-High Remains on the Radar

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

DailyFX Calendar

Updates to the 4Q U.S. Gross Domestic Product (GDP) report may heighten the appeal of the greenback as the fresh revision is expected to show the economy growing an annualized 2.7% versus an initial forecast of 2.5%.

Signs of stronger-than-expected activity may encourage the Federal Open Market Committee (FOMC) to deliver one rate-hike at every quarterly meeting, and Chairman Jerome Powell and Co. may continue to prepare U.S. households and businesses for higher borrowing-costs as ‘the Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate.’ In turn, a batch of positive developments may foster a bullish reaction in the U.S. dollar as the central bank appears to be on course to further normalize monetary policy over the coming months.

However, a set of below-forecast prints may trigger a bearish reaction in the greenback as it drags on interest-rate expectations, with EUR/USD at risk of staging a more meaningful advance over the coming days as it breaks out of a narrow range.

Impact that the U.S. GDP report 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 F

2017

12/21/2017 13:30:00 GMT

3.3%

3.2%

+6

+16

3Q 2017 U.S. Gross Domestic Product (GDP)

EUR/USD 5-Minute Chart

EUR/USD 5-Minute Chart

The final reading for the 3Q U.S. Gross Domestic Product (GDP) report showed an unexpected downward revision in the growth rate, with the economy expanding an annualized 3.2% versus an initial forecast of 3.3%. A deeper look at the report showed the gauge for Personal Consumption also narrowing to 2.2% from earlier projections of 2.3%, with the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, slowing to 1.3% from 1.4% during the same period. The initial reaction was short-lived, with EUR/USD pulling back towards the 1.1850 region, but the pair regained its footing during the North American trade to end the day at 1.1874.

EUR/USD Daily Chart

EUR/USD Daily Chart
  • EUR/USD pulls back from a fresh weekly-high (1.2476), but the near-term outlook remains tilted to the topside as it breaks out of a narrow range.
  • Need a close above back the 1.2430 (50% expansion) to keep the 2018-high (1.2556) on the radar, with the next topside hurdle coming in around 1.2640 (61.8% expansion) to 1.2650 (38.2% retracement) followed by the 1.2860 (50% expansion) region.
  • Keeping a close eye on the Relative Strength Index (RSI) as it snaps the bearish formation carried over from the previous month and appears to be extending the upward trend from late last year.

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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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