What to Expect in Forex from GDP

America Prelim GDP is going to be published at 13:30 GMT. Expectations are low. This week’s course sees American data disappointing and the dollar rising afterwards – risk aversion at its best. Will the Euro make the dive?

Forex Traders are expecting a severe downgrade of data from the Advance GDP that was published a few weeks ago. Predictions are for a fall of 5.4% (annually adjusted). This is significantly lower than the -3.8% that was recorded in the Advance GDP.  

These expectations are very bad, but they stand on solid ground: all American indicators show a fast contraction in the economy. Consumer Confidence is at record lows as well.

If we look at this week’s data, we see very humble expectations. But also these  pessimistic expectaions proved to be optimistic.

For example, yesterday’s Core  Durable Goods Orders dropped by 5.2%, when they were expected to fall by only 2.4%. Unemployment Claims were predicted to stay stable, at around 620K, but they marched forward, to 667K. Also  New Home Sales disappinted despite very shallow expectations.

But these are not normal days, when a currency weakens on bad data. The opposite happens – bad data in the US causes fear of risk all over the globe. And then, Risk Aversion steps in – traders flock to “safe” currencies, and there’s currently only one like this – the US dollar, that “won the Oscar of currencies”  🙂

The most popular pair, EUR/USD weakened since these important and bad economic indicators.

If we take this week’s lesson for the upcoming release of the Prelim GDP, we might see a drop of 6 or 7 percent in GDP, and then a collapse of the EUR/USD.

At the beginning of the week, I wrote that the Euro is going down. I believe that the Prelim GDP on a Friday (also end of the month), could lead this year’s low of  1.2330.

Last week, the fastest moves were also made on Friday afternoon (16:50 GMT to be precise), when the dollar erased all its weekly gains in 15 minutes. I blamed it mostly on fears of nationalization, but it could also be some kind of “Friday effect“.

And with the month ending, price action could be very wild. Hold tight!