TheNews

- Euro-Zone Growth Rate to Rebound 0.1% in Third-Quarter.
- Will ECB Venture into QE as Weak Growth Raises Threat for Deflation?

Trading the News: Euro-Zone Gross Domestic Product (GDP)

The Euro-Zone’s 3Q Gross Domestic Product (GDP) report may generate a larger correction in EUR/USD as the monetary union is expected to return to growth after stagnating during the three-months through June.

What’s Expected:




Why Is This Event Important:

However, a rebound in the growth rate may do little to heighten the appeal of the single-currency as the European Central Bank (ECB) is widely expected to implement more non-standard measures in December, and the ongoing deviation in the policy outlook continues to foster a bearish outlook for EUR/USD as the Federal Reserve moves away from its easing cycle.

Expectations: Bullish Argument/Scenario

Release	Expected	Actual
Economic Confidence (OCT)	99.7	100.7
Construction Output (MoM) (AUG)	--	1.5%
Trade Balance s.a. (AUG)	13.3B	15.8B

Improved confidence along with the pickup in building activity may generate a more meaningful rebound in the growth rate, and an upbeat GDP report may trigger a bullish reaction in the Euro as it dampens bets for QE in the euro-area.

Risk: Bearish Argument/Scenario

Release	Expected	Actual
Retail Sales (MoM) (SEP)	-0.8%	-1.3%
Consumer Price Index Core (YoY) (OCT A)	0.8%	0.7%
Unemployment Rate (SEP)	11.5%	11.5%

Nevertheless, high unemployment paired with the slowdown in private consumption may continue to drag on economic activity, and a dismal growth print may put increased pressure on the ECB to offer additional monetary support amid the growth threat for deflation.

How To Trade This Event Risk

Bullish EUR Trade: 3Q GDP Climbs 0.1% or Greater

• Need green, five-minute candle following a positive report to consider a long EUR/USD trade
• If market reaction favors a bullish Euro trade, buy EUR/USD with two separate position
• Set stop at the near-by swing low/reasonable distance from cost; at least 1:1 risk-to-reward
• Move stop to entry on remaining position once initial target is met, set reasonable limit

Bearish EUR Trade: Euro-Zone Fails to Grow & Spurs Bets for More ECB Support

• Need red, five-minute candle to favor a short EUR/USD trade
• Implement same strategy as the bullish euro trade, just in reverse

Potential Price Targets For The Release
EUR/USD Daily

• Long-term EUR/USD outlook remains bearish as RSI retains downward trend, but will watch former support for new resistance as the exchange rate continues to come off of channel support.
• Interim Resistance: 1.2600 pivot to 1.2620 (61.8% expansion)
• Interim Support: 1.2280 (100% expansion) to 1.2300 pivot

Impact that Euro-Zone GDP has had on EUR/USD during the last quarter

Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event )	Pips Change (End of Day post event)
2Q A 2014	08/14/2014 09:00 GMT	0.1%	0.0%	+18	+1

The euro-area economy failed to grow in the second quarter of 2014 following a 0.2% expansion during the first three-months of the year, raising the threat for deflation across the monetary union. The weaker-than-expected growth was mainly attributed to the economic contraction Germany, with Europe’s growth engine slowing for the first time since 1Q 2013. The lackluster recovery is likely to put increased pressure on the European Central Bank (ECB) to boost market liquidity especially as private-sector lending remains subdued. Despite missing market expectations, the EUR/USD climbed above the 1.3400 region during the European trade, but largely struggled to retain the gains as the pair closed at 1.3362.

--- Written by David Song, Currency Analyst and Shuyang Ren


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