US Dollar Outlook: US Q3 GDP Starter Before FOMC Main Course
US Dollar and Q3 GDP Analysis, Price and Charts
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USD Volatility Likely After High Importance Events
The US dollar has traded in a tight range over the last 4-5 days as traders stick on the sidelines ahead of today’s advanced US Q3 GDP release and the latest interest rate decision from the Federal Reserve. A slowdown in US growth is expected while the Fed is fully expected to cut interest rates for the third time this year by another 25 basis points.
The first look at US Q3 GDP is expected to show q/q growth slowing to 1.6% from a prior quarter 2.0%. The Atlanta Fed’s GDPNow model estimates growth of 1.7%, while the New York Fed’s Nowcast model estimates show economic expansion of 1.9%. While the US is still expected to show robust growth, the market estimate of 1.6% would be a multi-year low, aside from Q4 2018. US growth has exceeded 3% in four out of the last seven quarters.
While US growth remains robust in global terms, the ongoing US-China trade war is starting to weigh on GDP and in particular the manufacturing sector. The last ISM manufacturing print of 47.8, missed expectations of 50.1 and highlighted the steepest slowdown in manufacturing since mid-2009. This Friday’s ISM release is expected to remain in contraction territory with market expectations of a 49.0 out turn.
Later today the US Federal Reserve is fully expected to cut US interest rates by another 25 basis points, the third cut this year. US dollar volatility is expected to rise around this event with traders looking to subsequent commentary from Fed Chair Jerome Powell on the health of the economy and the future path of interest rates.
The US dollar basket (DXY) has traded in a narrow range in the last few days after breaking its strong uptrend on October 10. The daily chart shows the 200-day moving average acting as short-term support, but any GDP miss and/or dovish commentary from Powell may see this prop come under pressure.
US Dollar Basket (DXY) Price Chart (January – October 30, 2019)
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