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

Updates to the 2Q U.S. Gross Domestic Product (GDP) report may produce headwinds for the dollar as the growth rate is now expected to increase 4.0% versus an initial forecast for a 4.1% print.

Image of DailyFX economic calendar

A marked downward revision in the GDP figure may impact the monetary policy outlook as signs of a less robust economy rattles bets for an extended hiking-cycle, and Chairman Jerome Powell & Co. may continue to project a neutral Fed Funds rate of 2.75% to 3.00% as measures for inflation show ‘no clear sign of an acceleration above 2 percent.’

With that said, the Federal Open Market Committee (FOMC) may deliver a dovish rate-hike at the next quarterly meeting in September, but a positive development may keep the Fed on track to implement four rate-hikes in 2018 as the central bank largely achieves its dual mandate for full-employment and price stability. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

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 P

2018

05/30/2018 12:30:00 GMT

2.3%

2.2%

-7

+29

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

EUR/USD 10-Minute Chart

Image of eurusd 5-minute chart

Adjustments to the 1Q U.S. Gross Domestic Product (GDP) report showed the economy growing 2.2% versus an initial forecast of 2.3%, with the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, highlighting similar dynamic as the index narrowed to 2.3% from 2.5%. The measure for Personal Consumption also failed to meet market expectations as the figure printed at 1.0% amid projections for a 1.2% clip.

Nevertheless, the revisions sparked a limited reaction in EUR/USD, with the exchange rate appreciating during the North American trade to close the day at 1.1661. Review the DailyFX Advanced Guide for Trading the News to learn our 8 step strategy.

EUR/USD Daily Chart

Image of eurusd daily chart
  • There appears to be a broader shift in EUR/USD behavior as both price and the Relative Strength Index (RSI) break out the bearish trends from earlier this year, and the rebound from the 2018-low (1.1301) may continue to gather pace as the exchange rate snap the monthly opening range.
  • The close above 1.1640 (23.6% expansion) to 1.1680 (50% retracement) region raise the risk for a move back towards 1.1810 (61.8% retracement), which largely lines up with the July-high (1.1791), with the next region of interest comes in around 1.1960 (38.2% retracement) to 1.1970 (23.6% expansion).

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

Additional Trading Resources

New to the currency market? Want a better understanding of the different approaches for trading? Start by downloading and reviewing the DailyFX Beginners Guide!

Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader series on how to effectively use leverage along with other best practices that any trader can follow.

--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.