TheNews

Trading the News: U.S. Gross Domestic Product (GDP)

A marked downward revision in the preliminary 1Q U.S. Gross Domestic Product (GDP) report may drag on the greenback and spur a near-term rebound in EUR/USD as the Federal Reserve looks to carry its zero-interest rate policy into the second-half of 2015.

What’s Expected:



Why Is This Event Important:

Even though the Fed pledges to look past the economic weakness drive by transitory factors, a larger-than-expected contraction in the growth rate may spur a further delay in the central bank’s normalization cycle as it undermines expectations for a stronger recovery.

Expectations: Bearish Argument/Scenario

Release	Expected	Actual
Wholesale Trade Sales (MoM) (MAR)	0.5%	-0.2%
Trade Balance (MAR)	-$41.7B	-$51.4B
Advance Retail Sales (MoM) (MAR)	1.1%	0.9%

Waning demand from home and abroad may become a growing concern for the Fed amid the ongoing slack in the real economy, and a dismal GDP report may dampen the appeal of the greenback as it drags on interest rate expectations.

Risk: Bullish Argument/Scenario

Release	Expected	Actual
Consumer Credit (MAR)	$15.800B	$20.523B
Existing Home Sales (MAR)	3.1%	6.1%
Manufacturing Production (SIC) (MAR)	0.1%	0.1%

Nevertheless, increased business outputs paired with the expansion in private-sector credit may offer a better-than-expected GDP print, and prospects for a stronger recovery may spur a bullish reaction in the dollar as the Fed remains on course to remove the zero-interest rate policy (ZIRP) in 2015.

How To Trade This Event Risk

Bearish USD Trade: Growth Rate Contracts 0.9% or Greater

• Need to see green, five-minute candle following the GDP report to consider a long trade on EURUSD.
• If market reaction favors a short dollar trade, buy EURUSD with two separate position.
• Set stop at the near-by swing low/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.

Bullish USD Trade: 1Q GDP Report Exceeds Market Forecast

• Need red, five-minute candle to favor a short EURUSD trade.
• Implement same setup as the bearish dollar trade, just in reverse.

Potential Price Targets For The Release
EURUSD Daily

• Failure to preserve the near-term downward trending channel may generate a larger rebound in EUR/USD and spur a consolidation phase in the days ahead.
• Interim Resistance: 1.1180 (23.6% expansion) to 1.1210 (61.8% retracement)
• 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)
4Q P 2014	02/27/2015 13:30 GMT	2.0%	2.2%	+1	+47

4Q 2014 U.S. Gross Domestic Product (GDP)
EURUSD M5: 19 pips price movement by USD - GDP news event:



Even though the preliminary 4Q U.S. GDP print was revised down to an annualized 2.2% from an initial forecast of 2.6%, the print still managed to exceed market expectations for a 2.0% rate of growth. At the same time, Personal Consumption was also revised down to 4.2% from 4.3%, while the core Personal Consumption Expenditure (PCE) remained unchanged at 1.1% during the same period. The better-than-expected GDP reading may keep the Fed on course to normalize monetary policy in 2015 as the central bank anticipates a stronger recovery in the year ahead. The greenback strengthened following the report, with EUR/USD slipping below the 1.1200 handle to end the North American session at 1.1189.

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

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