Lackluster U.S. GDP To Keep EUR/USD Rate Afloat

Updates to the 2Q U.S. Gross Domestic Product (GDP) report may produce headwinds for the dollar as the growth rate is now expected to increase 4.0% versus an initial forecast for a 4.1% print.

A marked downward revision in the GDP figure may impact the monetary policy outlook as signs of a less robust economy rattles bets for an extended hiking-cycle, and Chairman Jerome Powell & Co. may continue to project a neutral Fed Funds rate of 2.75% to 3.00% as measures for inflation show ‘no clear sign of an acceleration above 2 percent.’

With that said, the Federal Open Market Committee (FOMC) may deliver a dovish rate-hike at the next quarterly meeting in September, but a positive development may keep the Fed on track to implement four rate-hikes in 2018 as the central bank largely achieves its dual mandate for full-employment and price stability.

IMPACT THAT THE U.S. GDP REPORT HAS HAD ON EUR/USD DURING THE PREVIOUS QUARTER

Preliminary 1Q 2018 U.S. Gross Domestic Product (GDP)

EUR/USD 10-Minute Chart

Adjustments to the 1Q U.S. Gross Domestic Product (GDP) report showed the economy growing 2.2% versus an initial forecast of 2.3%, with the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, highlighting similar dynamic as the index narrowed to 2.3% from 2.5%. The measure for Personal Consumption also failed to meet market expectations as the figure printed at 1.0% amid projections for a 1.2% clip.

Nevertheless, the revisions sparked a limited reaction in EUR/USD, with the exchange rate appreciating during the North American trade to close the day at 1.1661. 

EUR/USD DAILY CHART

(Click on image to enlarge)

• There appears to be a broader shift in EUR/USD behavior as both price and the Relative Strength Index (RSI) break out the bearish trends from earlier this year, and the rebound from the 2018-low (1.1301) may continue to gather pace as the exchange rate snap the monthly opening range.
• The close above 1.1640 (23.6% expansion) to 1.1680 (50% retracement) region raise the risk for a move back towards 1.1810 (61.8% retracement), which largely lines up with the July-high (1.1791), with the next region of interest comes in around 1.1960 (38.2% retracement) to 1.1970 (23.6% expansion).