TheNews

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

The U.S. economy is projected to grow an annualized 2.5% in the third-quarter of 2016, and a marked pickup in the Gross Domestic Product (GDP) may boost the appeal of the greenback and trigger a near-term decline in EUR/USD as it fuels speculation for an imminent Fed rate-hike.

What’s Expected:

Why Is This Event Important:

It seems as though the Federal Open Market Committee (FOMC) is following a similar path to 2015 as a growing number of central bank officials endorse a December rate-hike, but the majority may continue to endorse a ‘gradual’ path in normalizing monetary policy as ‘survey-based measures of longer-run inflation expectations were little changed, on balance, while market-based measures of inflation compensation remained low.’ With that said, a marked slowdown in the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, may spark a bearish reaction in the greenback as it drags on interest-rate expectations.

How To Trade This Event Risk
Bullish USD Trade: U.S. Expands Annualized 2.5% or Greater

• Need red, five-minute candle following the release to favor a short position on EUR/USD.
• If market reaction favors a bullish 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.

Bearish USD Trade: GDP Report Fails to Meet Market Forecast

• Need a green, five-minute candle to favor a long EUR/USD trade.
• Implement same strategy as the bullish dollar trade, just in reverse.

Potential Price Targets For The Release
EUR/USD Daily

• EUR/USD appears to be establishing a bear-flag formation as the broader outlook remains tilted to the downside, but a move back above 1.0940 (61.8% retracement) to 1.0970 (38.2% retracement) may spur a test of trendline resistance especially as the Relative Strength Index (RSI) comes off of oversold territory.
• Interim Resistance: 1.1090 (50% retracement) to 1.1110 (50% retracement)
• Interim Support: 1.0780 (100% expansion) to 1.0800 (23.6% retracement)

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