EUR/USD to Face Further Losses on Strong U.S. 2Q GDP

- U.S. Economy to Grow 3.0%- Fastest Pace of Growth Since 3Q 2013.

- Personal Consumption to Expand for 18-Consecutive Quarters.

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

The advance Gross Domestic Product (GDP) report may heighten the appeal of the U.S. dollar as the world’s largest economy is expected to grow an annualized 3.0% in the second-quarter.

What’s Expected:

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Why Is This Event Important:

A marked rebound in the growth rate may spark a greater dissent within the Federal Open Market Committee (FOMC) as a growing number of central bank officials scale back their dovish tone for monetary policy, and Chair Janet Yellen may come under increased pressure to normalize monetary policy sooner rather than later as the outlook for growth and inflation improves.

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Expectations: Bullish Argument/Scenario

The pickup in wage growth along with the ongoing improvement in the labor market may generate a better-than-expected GDP print, and a large uptick in the growth rate may generate a bullish reaction in the greenback (bearish EUR/USD) as it fuels interest rate expectations.

Risk: Bearish Argument/Scenario

However, sticky inflation paired with the persistent slack in the housing market may weigh on the growth rate, and a disappointing GDP release may spur a near-term selloff in the reserve currency as it gives the Fed greater scope to retain its highly accommodative policy stance for an extended period of time.

How To Trade This Event Risk(Video)

Bullish USD Trade: U.S. Economy Expands 3.0% or Greater

• Need to see red, five-minute candle following the release to consider a short trade on EURUSD
• If market reaction favors a long dollar trade, sell EURUSD 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: 2Q GDP Reading Disappoints

• Need green, five-minute candle to favor a long EURUSD trade
• Implement same setup as the bullish dollar trade, just in the opposite direction

Potential Price Targets For The Release

EUR/USD Daily

Chart - Created Using FXCM Marketscope 2.0

• Despite oversold RSI signal, downside targets remain favored
• Interim Resistance: 1.3650 (78.6% expansion) to 1.3670 (61.8% retracement)
• Interim Support: 1.3370 (38.2% retracement) to 1.3380 (38.2% expansion)

Read More:

Price & Time: What Is Going On With Gold?

US Dollar Turn Can Forge Trend on Fed Decision, NFPs, 2Q GDP

Impact that the U.S. GDP report has had on EUR/USD during the last release

1Q 2014 U.S. Gross Domestic Product (GDP)

The U.S. economy grew a lackluster 0.1% in the first-quarter after expanding an annualized 2.6% during the last three-months of 2013, and the persistent slack in private sector activity may continue to cast a bearish outlook for the greenback as the Fed retains a dovish outlook for monetary policy. The dollar struggled to hold its ground following the dismal GDP print, with the EUR/USD climbing above the 1.3850 region, and the reserve currency struggled to hold its ground throughout the North American session as the pair ended the day at 1.3864.

--- Written by David Song, Currency Analyst

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

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