EURUSD TALKING POINTS:
- Germany, Italy and the Euro-Zone as a whole all announce fourth-quarter GDP figures Wednesday.
- Trading the numbers will not be easy but a key point to remember is that EURUSD has begun to firm again after a few days of weakness, and the path of least resistance is upwards.
TRADING THE NEWS: EURO-ZONE GDP DATA
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In early European business hours this morning a flood of Euro-Zone data will be released and trading around the figures will be difficult. Here, however, are some pointers. First up, at 0700 GMT, Germany has announced its economic growth numbers for the final quarter of last year along with inflation statistics for January.
While GDP growth data are essentially backward looking and are therefore often ignored by traders, this set could be important because the markets are very keen for pointers towards when this year the European Central Bank will be withdrawing some of the monetary stimulus it provides for the Euro-Zone economy and when, after that, it will begin raising interest rates. The accompanying German inflation numbers for January can probably be safely dismissed as these are final figures; provisional data having been released already.
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German GDP expanded by 0.6% quarter/quarter in the October-December period, down from revised growth of 0.7% in the months July to September. However, that still raised year/year growth to 2.9% from a revised 2.7% working day adjusted, a very healthy number that might well persuade the ECB that monetary policy needs to be tightened.
Italian GDP data released at 0900 GMT can probably be safely ignored when trading the Euro. However, taken, together, the growth figures from Germany and Italy could lead to some adjustment of expectations for the Euro-Zone as a whole. Currently, economists are expecting the numbers to be released at 1000 GMT to show Euro-Zone GDP growth in the fourth quarter unchanged at 0.6% quarter/quarter and 2.7% year/year but obviously if the German and Italian figures are out of line with predictions the Euro-Zone numbers will likely be too.
Moreover, there could well be a response if the Euro-Zone industrial production numbers for December are far from the forecast rises of 0.1% month/month, down from 1.0%, and 4.2% year/year, up from 3.2%. Other things being equal, better than expected data would strengthen the Euro while weaker than predicted figures would weaken it.
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So how might the Euro react? The key point to remember is that EURUSD rose strongly last year and, after a relapse in the first few days of February, has begun to climb again. As long as it can clamber above the 20-day moving average, the green line on the chart below, it will likely advance further.
EURUSD Price Chart, Daily Timeframe (January 2, 2017 – February 13, 2018)
The key target on the upside now is the 1.2537 high touched on January 25 and a rise above that level would likely lead to further gains. Conversely, the key level to watch on the downside is the 1.2207 low from February 9 and a dip below there would likely lead to further losses.
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The last time Euro-Zone GDP data were released was on October 31 last year, when third-quarter figures showed growth exceeding expectations. While there was little response on the day, EURUSD was firm in the days that followed, showing how important these numbers can be.
EURUSD Price Chart, Daily Timeframe (September 3, 2017 – January 22, 2018)
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--- Written by Martin Essex, Analyst and Editor