EUR/USD Extends Bearish Sequence Ahead of 1Q U.S. GDP Report

– Advanced 1Q U.S. Gross Domestic Product (GDP) to Show Growth Rate Slowing to Annualized 2.0% from 2.9%. Core Personal Consumption Expenditure (PCE) to Climb to 2.6% from 1.9%.

– EUR/USD Clears March-Low (1.2155) as Bearish Sequence Unfolds. Relative Strength Index (RSI) Slips Towards Overbought Territory.

Trading the News: U.S. Gross Domestic Product (GDP)

Updates to the U.S. Gross Domestic Product (GDP) report may curb the recent weakness in EUR/USD as the growth rate is anticipated to slow to an annualized 2.0% from 2.9%.

Bear in mind, market participants may put greater emphasis on the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, as the reading is projected to increase 2.6% during the first three-months of 2018, which would mark the fastest pace of growth since 2007. Signs of heightening price pressures may ultimately trigger a bullish reaction in the U.S. dollar as it puts pressure on the Federal Open Market Committee (FOMC) to extend the hiking-cycle.

However, a series of below-forecast data prints may sap the appeal of the greenback, and EUR/USD may stage a near-term rebound as market participants scale back bets for four Fed rate-hikes in 2018.

Impact that the U.S. GDP report has had on EUR/USD during the previous quarter

4Q 2017 U.S. Gross Domestic Product (GDP)

EUR/USD 15-Minute Chart

The U.S. economy grew less-than-expected during the last three-months of 2017, with the growth rate slowing to an annualized 2.6% from 3.2% in the third-quarter. A deeper look at the report showed the core Personal Consumption Expenditure (PCE) climbing to an annualized 1.9% from 1.3%, while the gauge for Personal Consumption increased 3.8%during the same period amid forecast for a 3.7% print.

The lackluster data prints sparked a mixed reaction in the greenback, with EUR/USD largely consolidating throughout the day to close at 1.2429. Sign up & join DailyFX Currency Strategist Christopher Vecchio LIVE to cover the fresh updates to the U.S. GDP report.

EUR/USD Daily Chart

• Near-term outlook for EUR/USD remains tilted to the downside as it extends the series of lower highs & lows from the previous week, with the pair clearing the March-low (1.2155).
• Close below 1.2130 (50% retracement) raises the risk for a move towards 1.1960 (38.2% retracement) to 1.1970 (23.% expansion), with the next region of interest coming in around 1.1810 (61.8% retracement) followed by the Fibonacci overlap around 1.1670 (78.6% expansion) to 1.1680 (50% retracement).
• Keep a close eye on the RSI as it approaches oversold territory, with move below 30 raising the risk for a further decline in the exchange rate as the bearish momentum gathers pace.

For more in-depth analysis, check out the Q2 Forecast for EUR/USD

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— Written by David Song, Currency Analyst

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