DailyFX.com -
- U.S. 3Q GDP to Expand Annualized 2.5%- Fastest Pace of Growth Since 2Q 2015.
- Core PCE, Fed’s Preferred Gauge for Inflation, to Slow to Annualized 1.6%.
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Trading the News: U.S. Gross Domestic Product (GDP)
The U.S. economy is projected to grow an annualized 2.5% in the third-quarter of 2016, and a marked pickup in the Gross Domestic Product (GDP) may boost the appeal of the greenback and trigger a near-term decline in EUR/USD as it fuels speculation for an imminent Fed rate-hike.
What’s Expected:
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Why Is This Event Important:
It seems as though the Federal Open Market Committee (FOMC) is following a similar path to 2015 as a growing number of central bank officials endorse a December rate-hike, but the majority may continue to endorse a ‘gradual’ path in normalizing monetary policy as ‘survey-based measures of longer-run inflation expectations were little changed, on balance, while market-based measures of inflation compensation remained low.’ With that said, a marked slowdown in the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, may spark a bearish reaction in the greenback as it drags on interest-rate expectations.
Expectations: Bullish Argument/Scenario
| Release | Expected | Actual |
| Existing Home Sales (MoM) (SEP) | 0.4% | 3.2% |
| Advance Retail Sales (MoM) (SEP) | 0.6% | 0.6% |
| Consumer Credit (AUG) | $16.500B | $25.873B |
The pickup in household consumption accompanied by the expansion in private-sector credit may generate a better-than-expected GDP report, and a signs of a stronger recovery may fuel the near-term advance in the U.S. dollar amid the Fed remains on course to remove its highly accommodative policy stance.
Risk: Bearish Argument/Scenario
| Release | Expected | Actual |
| Non-Defense Capital Goods Orders ex. Aircrafts (SEP P) | -0.1% | -1.2% |
| NFIB Small Business Optimism (SEP) | 95.0 | 94.1 |
| Non-Farm Payrolls (SEP) | 172K | 156K |
However, waning business confidence paired with the slowdown in employment may weigh on the growth rate, and a dismal development may push Fed officials to further reduce the long-run interest-rate forecast as the central bank remains ‘data dependent.’
How To Trade This Event Risk(Video)
Bullish USD Trade: U.S. Expands Annualized 2.5% or Greater
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Need red, five-minute candle following the release to favor a short position on EUR/USD.
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If market reaction favors a bullish dollar trade, sell EUR/USD with two separate position.
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Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward.
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Move stop to entry on remaining position once initial target is hit; set reasonable limit.