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Upbeat U.S. GDP Report to Fuel EUR/USD Weakness

Upbeat U.S. GDP Report to Fuel EUR/USD Weakness

2018-07-27 10:30:00
David Song, Strategist
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Trading the News: U.S. Gross Domestic Product (GDP)

Updates to the U.S. Gross Domestic Product (GDP) report may fuel the recent decline in EUR/USD as the economy is expected to expand 4.2% per annum in the second quarter of 2018, which would mark the fastest pace of growth since 2014.

Image of DailyFX economic calendar

Data prints pointing to a robust economy may encourage the Federal Open Market Committee (FOMC) to adopt a more hawkish tone at the next interest rate decision on August 1, and Chairman Jerome Powell & Co. are likely to reiterate that ‘gradually returning interest rates to a more normal level as the economy strengthens is the best way the Fed can help sustain an environment in which American households and businesses can thrive’ as the central bank largely achieves its dual mandate for full-employment and price stability.

With that said, growing expectations for four Fed rate-hikes in 2018 may keep EUR/USD under pressure, but a marked slowdown in the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, may produce a bearish reaction in the dollar as it curbs the FOMC’s scope to extend the hiking-cycle.

Impact that the U.S. GDP report has had on EUR/USD during the last quarter

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

1Q

2018

04/27/2018 12:30:00 GMT

2.0%

2.3%

+15

+49

1Q 2018 U.S. Gross Domestic Product (GDP)

EUR/USD 10-Minute Chart

Image of EURUSD 5-minute chart

The U.S. economy grew 2.3% per annum during the first three-months of 2018, down from the 2.9% expansion in the fourth-quarter of 2017, while the core Personal Consumption Expenditure (PCE) climbed to 2.5% from 1.9% during the same period. At the same time, the gauge for Personal Consumption narrowed to 1.1% from 4.0%, but the data prints may do little to derail the Federal Reserve from its hiking-cycle as the central bank warns that ‘the Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term.

The initial downtick in EUR/USD was short-lived, with the exchange rate climbing above the 1.2100 handle to close the day at 1.2126. Sign up and joinDailyFX Analyst Justin McQueen LIVE to cover the fresh updates to the U.S. GDP report.

EUR/USD Daily Chart

Image of EURUSD daily chart
  • Keep in mind, the string of failed attempts to test the July-high (1.1791) may push EUR/USD back towards the lower bounds of its recent range, with the 1.1510 (38.2% expansion) region on the radar as it largely lines up with the June-low (1.1508).
  • Need a break/close below the stated region to open up the downside targets for EUR/USD, with the first region of interest coming in around 1.1390 (61.8% retracement) to 1.1400 (50% expansion) followed by the 1.1290 (61.8% expansion) hurdle.

For more in-depth analysis, check out the Q3 Forecast for EUR/USD

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

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

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