EUR/USD August Rally To Erode Further On Upbeat 2Q U.S. GDP
Dailyfx | Aug 27, 2015 05:45AM ET
Trading the News: U.S. Gross Domestic Product (GDP)
An upward revision in the 2Q U.S. Gross Domestic Product (GDP) report may boost the appeal of the greenback and spark a larger pullback in EUR/USD as it fuels speculation for a September Fed rate hike.
What’s Expected:
Why Is This Event Important:
The Fed may stay on course to normalize monetary policy in 2015 as the central bank still anticipates a stronger recovery to materialize over the coming months, and data prints encouraging an improved outlook for growth & inflation may spur a greater dissent within the committee as the economy gets on a more sustainable path.
Expectations: Bullish Argument/Scenario
|
Release |
Expected |
Actual |
|
Existing Home Sales (MoM) (JUL) |
-1.1% |
2.0% |
|
Advance Retail Sales (MoM) (JUL) |
0.6% |
0.6% |
|
ISM Non-Manufacturing (JUL) |
56.2 |
60.3 |
The expansion in service-based activity along with the pickup in household spending may generate a stronger-than-expected GDP print, and a positive development may boost interest rate expectations as Fed Chair Janet Yellen remains upbeat on the economy.
Risk: Bearish Argument/Scenario
|
Release |
Expected |
Actual |
|
Building Permits (MoM) (JUL) |
-8.0% |
-16.3% |
|
Non-Farm Payrolls (JUL) |
225K |
215K |
|
Construction Spending (MoM) (JUN) |
0.6% |
0.1% |
However, easing job growth paired with the slowdown in building activity may drag on growth rate, and signs of a slower recovery may spur a further delay of the Fed’s normalization cycle as the central bank struggles to achieve the 2% target for inflation.
How To Trade This Event Risk(Video )
Bullish USD Trade: Growth Rate Expands Annualized 3.2% or Greater
- Need to see red, five-minute candle following the GDP report to consider a short trade on EUR/USD.
- If market reaction favors a long dollar trade, sell EUR/USD with two separate position.
- Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward.
- Move stop to entry on remaining position once initial target is hit; set reasonable limit.
Get The News You Want
Bearish USD Trade: 2Q GDP Report Falls Short of Market Expectations
- Need green, five-minute candle to favor a long EUR/USD trade.
- Implement same setup as the bullish dollar trade, just in reverse.
Potential Price Targets For The Release
EUR/USD Daily
Chart - Created Using FXCM Marketscope 2.0
- Near-term breakout in EUR/USD keeps the focus on the topside targets as the RSI retains the bullish momentum; will retail a constructive view along as the pair holds above former-resistance around 1.1180 (23.6% retracement) to 1.1210 (61.8% retracement).
- DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short EUR/USD since March 9, but the ratio continues to come off of recent extremes as it narrows to -1.76, with 36% of traders long.
- Interim Resistance: 1.1760 (61.8% retracement) to 1.1810 (38.2% retracement)
- Interim Support: Interim Support: 1.0790 (50% expansion) to 1.0800 (23.6% expansion)
Impact that the U.S. GDP report has had on EUR/USD during the last release
|
Period |
Data Released |
Estimate |
Actual |
Pips Change (1 Hour post event ) |
Pips Change (End of Day post event) |
|
1Q P 2015 |
05/29/2015 12:30 GMT |
-0.9% |
-0.7% |
-6 |
+6 |
1Q 2015 U.S. Gross Domestic Product (GDP)
The preliminary 1Q Gross Domestic Product (GDP) report a downward revision in the growth rate to reflect an annualized 0.7% contraction in the growth rate amid an initial forecast for a 0.2% expansion. At the same time, Personal Consumption also failed to meet market forecast as the figure unexpectedly slowed to 1.8% from an advance reading of 1.9%. Despite the dismal GDP reading, the Federal Reserve may stay on course to remove the zero-interest rate policy (ZIRP) as the central bank sees the economic slowdown largely driven by transitory/seasonal factors. The initial market reaction was short-lived, with EUR/USD largely consolidating between 1.0950 and 1.1000, with the pair ending the North American trade at 1.0982.
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