Image Source: Pexels
 

Adv GDP Up Next

The big focus for traders today will be the release of advance quarterly GDP data in the US. Estimates peg the initial GDP reading for Q1 at 2%, down from 2.6% the prior quarter, which was itself a decline on the prior quarter’s 3.2% reading. If confirmed at 2%, the impact will likely be a weaker US Dollar as traders eye a less hawkish outlook from the Fed at next week’s FOMC meeting.
 

Recession Fears Return

Growth concerns have returned to the forefront in recent months amidst the recent US banking sector crisis. The unfolding of the crisis saw Fed rate hike expectations scaled back sharply. However, with actions taken by the Fed and the private sector seemingly having restored confidence, rate hike expectations had been creeping back up ahead of next week’s May FOMC.
 

Fed Implications

Over the last week, however, these expectations have been fluctuating as weaker data out of the US, some big misses in US earnings reports, and resurgent fears of a forthcoming US recession weighed on sentiment. Traders are still broadly expecting the Fed to hike by a further .25% next week. However, against the current backdrop, forward guidance is expected to be less hawkish. Today’s data will likely play a big part in determining the tone of next week’s outlook from the Fed.
 

Two-Way Risk

Any surprise strength in today’s data will be welcomed by the Fed and should see USD rising in line with the view that the Fed still has room to maintain a more hawkish tone. However, if today’s data undershoots forecasts, this will likely see USD sold sharply as traders move to anticipate a much more reserved message from the Fed next week.
 

Technical Views

DXY

(Click on image to enlarge)

For now, the Dollar Index continues to hold on support at the 101.22 level sitting around mid-way in the bear channel from last year’s highs. While within the channel, the focus is on a continuation lower and an eventual breakdown to 101.22 next. However, with the current 2023 lows holding as support and bullish divergence in momentum studies, upside risks are noted with 103.48 the next level to watch if we do reverse higher. 

More By This Author: