EUR/USD: Trading the US GDP Publication

The first release of the GDP for the first quarter holds very low expectations. Is the US economy slowing down? On this background, there’s room for a surprise and a lot of price action in currencies. Here are the details and 5 scenarios for the action in EUR/USD.

On Thursday, April 28th, at 12:30 GMT, the first estimation of US GDP will be published. This is the the preliminary release, followed by a revision and a final release. The first release has the strongest impact as the range of the outcome is wider.

2010 saw moderate growth, not as good as expected. A small acceleration was seen in the last quarter, as GDP rose to an annual rate of 3.1%. This was a promising quarter, as the economy “ate” a lot of inventories. This means that these inventories will have to be rebuilt.

Purchasing managers’ indices released during the first quarter are also positive – for all sectors, meaning that strong growth was seen across the US.  More support for a strong GDP comes from the improvement in the labor market. Non-Farm Payrolls rose nicely in recent months, and the unemployment rate fell to 8.8%.

But the money that workers make was somewhat eroded by the pickup in inflation, weighing on consumption. Higher prices of oil hit consumers hard. Activity in real estate has been low.

The negative factors overpowered the positive ones in economists’ forecast. Expectations stand on a growth rate of 1.9% (annualized), which is quite low.

Sentiment and Technical Levels

The sentiment in the markets remains anti-dollar. The fiscal problems in the US, and the aforementioned price of oil continue to be big burden on the greenback all over. On the other side of the Atlantic, things aren’t too good either – the Euro-zone has a high unemployment rate, and a worsening debt crisis.

But while Greece is on the brink of a default, the rising interest rate in Europe makes the sentiment bullish on EUR/USD, at least for now – at least until the loose monetary policy in the US stops.

Technical levels of support and resistance from top to bottom: 1.5144, 1.5020, 1.48, 1.47, 1.4650, 1.4580, 1.4520, 1.4450, 1.4375, 1.4282, 1.4160.

5 Scenarios

1. Within expectations: +1.6% to +2.3% – the dollar loses ground, with a potential of EUR/USD rising above resistance.
2. Above expectations: +2.4% to 3.1% (previous quarter’s result) – the dollar rises, and has a good chance the pair breaking below support.
3. Well above expectations: 3.2% or higher – this can’t be ruled out due to all the factors explained above – the dollar rises, with Euro/Dollar breaking below one support line and potentially another one.
4. Below expectations: +1% to +1.5%. Weak growth sends the dollar down, with EUR/USD likely to rise above resistance.
5. Well below expectations: +0.9% or lower – Less than 1% on an annual basis is terrible for the dollar – two resistance levels can be broken by EUR/USD.

For more analysis and events for EUR/USD, see the Euro/Dollar forecast.