Will Stronger 2Q GDP Spark a USD Breakout? Key Levels on Tap

Trading the News: Preliminary U.S. Gross Domestic Product

The preliminary 2Q U.S. GDP report may act as a fundamental catalyst to spark a near-term rally in the U.S. dollar as we anticipate an upward revision in the growth rate.

What’s Expected:

Time of release: 08/29/2013 12:30 GMT, 8:30 EDT

Primary Pair Impact: EURUSD

Expected: 2.2%

Previous: 1.7%

DailyFX Forecast: 1.8% to 2.5%

Why Is This Event Important:

Should the world’s largest economy expand an annualized 2.2% in the second quarter, the faster rate of growth may further the Fed’s argument to taper its asset-purchase program at the September 17-18 meeting, and the FOMC may sound less dovish this time around central bank officials see a stronger recovery over the remainder of the year.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

ISM Non-Manufacturing (JUL)

53.1

56.0

ISM Manufacturing (JUL)

52.0

55.4

Non-Farm Productivity (2Q P)

0.6%

0.9%

We may see a large upward revision in the growth rate amid the pickup in business outputs, and a positive GDP report may heighten the bullish sentiment surrounding the reserve currency as the Fed looks to slowly move away from its easing cycle.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Durable Goods Orders (JUL)

-4.0%

-7.3%

Advance Retail Sales (MoM) (JUL)

0.3%

0.2%

Change in Non-Farm Payrolls (JUL)

185K

162K

Nevertheless, the slowdown in private sector consumption along with the ongoing weakness in job growth may drag on the growth rate, and a weaker-than-expected print may prompt the FOMC to retain its highly accommodative policy stance for an extended period of time as the committee aims to encourage a stronger recovery.

How To Trade This Event Risk(Video)

Bullish USD Trade: 2Q GDP expands 2.2% or greater

  • Need to see red, five-minute candle following the release to consider a short EURUSD entry

  • If market reaction favors a sell trade, establish short with two position

  • Set stop at the near-by swing high/reasonable distance from cost; at least 1:1 risk-to-reward

  • Move stop to cost on remaining position once initial target is hit; place reasonable limit

Bearish USD Trade: Growth rate falls short of market forecast

  • Need green, five-minute candle to look at a long EURUSD position

  • Implement same strategy as the bullish USD trade, just in reverse

Potential Price Targets For The Rate Decision

Forex_Will_Stronger_2Q_GDP_Spark_a_USD_Breakout_Key_Levels_on_Tap_body_ScreenShot032.png, Will Stronger 2Q GDP Spark a USD Breakout? Key Levels on Tap
Forex_Will_Stronger_2Q_GDP_Spark_a_USD_Breakout_Key_Levels_on_Tap_body_ScreenShot032.png, Will Stronger 2Q GDP Spark a USD Breakout? Key Levels on Tap
  • Close below 1.3340 (61.8% retracement) adds further confirmation a top is in place

  • Bearish divergence in RSI favors downside targets; prices to follow

  • Soft resistance/pivot: 1.3450 (August high)

  • Need a close below 61.8% retracement (1.3340) for larger downturn

  • Next support area: 1.3240 (78.6% expansion) to 1.3320 (50.0% retracement)