EUR/USD: Trading the German first GDP May 2013

German  Preliminary GDP is a key measurement of the production and growth of the economy. Analysts consider GDP one the most important indicators of economic activity. A reading which is better than the market forecast is bullish for the euro.

Here are all the details, and 5 possible outcomes for EUR/USD.

Published on Wednesday at  6:00 GMT.

Update: Germany grows by only 0.1% – EUR/USD falls.

Indicator Background

German GDP is released quarterly, and provides an excellent indication of the health and direction of the economy in the past quarter. Traders should pay particular attention to this economic indicator and treat it as a market-mover. Thus, an unexpected reading can affect the movement of EUR/USD.

In Q4 of 2012, German GDP  posted its first decline in  a year, dropping from 0.2% to -0.6%.  The markets are expecting a turnaround in Q1, with an estimate of a 0.3% gain.  Will the indicator meet or beat this prediction?

Sentiments and levels

We’re hearing Draghi hint on negative rates, and other  ECB members have reiterated this call, so the ECB  appears to be seriously considering such a move.  This continues weighing on the euro, despite improvement in German numbers, since negative rates will  lead to fund flowing out of the  Eurozone.  And while the Japanese QE blitz also sends money into Europe, it sends more money to the US.

In the US, the better than expected jobless claims added a lot of optimism, in addition to the Non-Farm Payrolls. This had led to speculation that the Fed could wind down QE earlier than expected which is dollar-positive. So, the overall sentiment is bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.31, 1.3050, 1.30, 1.2960, 1.2880 and  1.2805.

5 Scenarios

1. Within expectations:  0.0% to 0.6%. In such a scenario, the EUR/USD is likely to rise within  range, with a small chance of breaking higher.
2. Above expectations:  0.7% to 1.0%: An unexpected higher reading can send the pair  above one  resistance line.
3. Well above expectations: Above 1.0%: Such an outcome would push EUR/USD higher, and a second  resistance line  might be broken as a result.
4. Below expectations:  -0.6% to -0.3%: A lower GDP than predicted could cause the pair to  drop and break one level of support.
5. Well below  expectations: Below -0.6%. An unexpected weak could push EUR/USD  lower and break a second  support level.

For more on the Euro, see the EUR/USD forecast.

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