EUR/USD:Trading the US GDP

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The Gross Domestic Product (GDP) is a measurement of the production and growth of the economy. Analysts consider GDP one the most important indicators of economic activity. Thus, publication of the US GDP will likely have a significant impact on EUR/USD.  A reading which is better than the market forecast is bullish for the dollar.

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

Published on Tuesday at 13:30 GMT.

Indicator Background

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.

The GDP has been shifting downwards for the past three readings, dating back to February. This is a worrying, if not alarming trend. However, the forecast for this quarter is for significant improvement to 2.5%, up nicely from the second quarter reading of 1%. Is this prediction overly optimistic? Can the indicator beat the third quarter forecast?

Sentiments and levels

Germany, with the largest economy the Euro Zone, is showing some strong economic growth. However, there is simply no way to downplay the debt crisis contagion which has now spread to France and Italy. This has lead to increasing concern about the future viability of the Euro. Thus, the overall sentiment is bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.3725, 1.3650, 1.3550, 1.3480, 1.3420, 1.3360 and 1.3145.

5 Scenarios

  1. Within expectations: 2.1% to 2.9%. In such a scenario, EUR/USD is likely to rise within range, with a small chance of breaking higher.
  2. Above expectations: 3% to 3.4%: An unexpected higher reading can send the pair well below one support line.
  3. Well above expectations: Above 3.4%: The chances of such a scenario are low. Such an outcome would push EUR/USD downwards, and a second support level might be broken as a result.
  4. Below expectations: 1.6% to 2%:  A lower GDP figure than predicted could cause the pair to climb and break one level of resistance.
  5. Well below expectations: Under 1.6%. Given the fragile US economy, such an outcome cannot be discounted. In this scenario, EUR/USD will rise and could break a second resistance level.

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

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About Author

Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.

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