Trading the News - US GDP to Force Turn in Dollar Sentiment?

Trading the News: US Gross Domestic Product


What is Expected
Time of release: 08:30 EST, 12:30 GMT 4/27/2007
Primary Pair Impact : EUR/USD
Expected: 1.8%
Previous: 2.5%

Effect of US Gross Domestic Product on EUR/USD For Past 3 Periods


Month
Data Released
Estimate
Actual
Pips Change
(1 Hours post event )
Pips Change
(End of Day post event)
Q4, 2006
01/31/2007 12:30 GMT
3.0%
3.5%
-12
+74
Q3, 2006
10/27/2007 13:30 GMT
2.0%
1.6%
+50
+53
Q2, 2006
07/28/2007 13:30 GMT
3.0%
2.5%
+76
+95


How To Trade This?


Upcoming GDP data will likely prove critical to the future of US dollar price action, as expectations of overall economic slowdown have thus far led to significant Greenback declines. If reactions to Q4 GDP numbers are any indication to what we can expect through future price trends, a strongly positive surprise could mark the true turn in the US dollar. We have been calling for a necessary dollar bounce since last week’s tumble, and recent days of rallies certainly leave scope for further advances. Given overwhelming bearish sentiment riding into the report, we likewise believe that risks remain to the upside for Q1 GDP estimates.

A stronger-than-expected GDP report would almost certainly take the EURUSD below a short-term rising trendline at 1.3590. Further support would come in at intraday spike-lows of 1.3550, but a truly large positive surprise would have little difficulty breaking through such minor technical levels. Our strategy suggests that the trader may go long short the EURUSD on a 5-minute confirmation of a dollar-bullish move, setting stops above preceding swing-highs.

Given the EURUSD near record-highs, a negative surprise in headline GDP figures would likely spark a rally through said resistance levels. A bounce off of intraday support eyes 1.3670 as an initial target, but the currency may have significant difficulty surpassing the psychologically significant 1.3700 mark.


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