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DailyFX Roundtable: U.S. 3Q GDP Implications for Fed & USD Outlook

DailyFX Roundtable: U.S. 3Q GDP Implications for Fed & USD Outlook

Talking Points:

- DXY Spikes to Session High as U.S. 3Q GDP Expands Annualized 3.0%, Core PCE Climbs to 1.3%.

- EUR/USD Risks Further Losses as Head-and-Shoulders Unfolds Following ECB Meeting.

- USD/JPY Struggles to Test July-High (114.50) Ahead of FOMC Meeting, NFP Report.

- USD/CHF Double-Bottom Highlights Measured Move to 1.0100.

- GBP/USD Approaches Monthly-Low (1.3027) Ahead of BoE ‘Super Thursday’ Event.

- JPN22 & DAX Bullish Momentum Persists; SPX500 Lags Behind.

- Missed the DailyFX Roundtable? Sign Up and Join the Next Event to Cover the U.S. Non-Farm Payrolls (NFP) Report!

Join DailyFX Strategists Michael Boutros and David Song to cover the advance U.S. 3Q Gross Domestic Product (GDP) report along with key trade setups going into the first full week of August. Highlighted setups include DXY, EUR/USD, USD/JPY, GBP/USD, NZD/USD, AUD/USD, USD/CAD, USD/CHF, AUD/JPY along with the global benchmark equity indices.

EUR/USD 5-Minute Chart


EUR/USD extends the decline following the European Central Bank (ECB) interest rate decision as the advance 3Q U.S. Gross Domestic Product (GDP) report exceeded market expectations, with the growth rate increasing an annualized 3.0% versus forecasts for a 2.6% print. At the same time, the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, bounced back from 0.9% per annum to 1.3% during the same period, and signs of faster price growth may keep the Federal Open Market Committee (FOMC) on course to deliver another rate-hike in 2017 as central bank officials largely expect ‘economic conditions would evolve in a manner that would warrant gradual increases in the federal funds rate.’

However, the market reaction was short-lived amid headlines pointing to a potential shift in the Fed leadership, with current Fed Governor Jerome Powell seen as the top contender to take the helm.

CME Fed Fund Futures

Even though Chair Janet Yellen and Co. are widely expected to retain the current policy on November 1, Fed Funds Futures highlight a greater than 90% probability for a 25bp rate-hike in December as the economy approaches full-employment. In turn, the U.S. dollar may exhibit a more bullish behavior over the near-term as Fed officials prepare U.S. households and business for higher borrowing-costs, but the upcoming rotation within the FOMC may produce headwinds for the greenback especially as Chair Yellen’s tenure is set to expire in February.

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EUR/USD Daily Chart

EUR/USD Daily Chart

The Euro broke below a significant support confluence at 1.1679 where the lower median-line parallel converges on the 23.6% retracement and the 100-day moving average. The broader focus remains weighted to the downside below this threshold with initial objectives eyed at the 2016 high-day close at 1.1495 and a critical support confluence at 1.1423. From a trading standpoint, if you’re not already short, I would be looking for a near-term recovery heading into next week to offer more favorable entries.

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--- Written by David Song, Currency Analyst

To contact David, e-mail Follow me on Twitter at @DavidJSong.

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