EUR/USD – How to Trade the German GDP Data

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EUR/USD - How to Trade the German GDP Data

EUR/USD has been consolidating since hitting a new low on the year last week at 1.2360. The 4H chart shows the triangle pattern forming throughout this week. It is somewhat of an ascending triangle.

EUR/USD 4H Chart 11/14
eurusd 4h chart 11/14
(click to enlarge)

The US jobs data on Thursday (11/13) did not have any material impact on the EUR/USD as we saw the pair remain in the triangle. However, as price action approaches the triangle apex it is bound to breakout, especially after the German GDP data coming up in the 11/14 European session.

German GDP q/q (Q3)
Forecast: 0.1%
Q2: -0.2%
German GDP Q3 2014

(click to enlarge; source: forexfactory.com)

Germany is at risk of going into a recession if the GDP contracts for a second quarter in a row. The forecast calls for 0.1%, which may stave off the technical definition of a recession, but is still a reflection of the slowdown in Germany as well as Europe as a whole

Scenario 1:
. A reading of 0.1%-0.4% might give the EUR/USD a bump, but unless we have more data of growth for the Eurozone, the rally might not sustain. In this scenario, we should expect some short-term upside risk, but expect sellers in the 1.26-1.2650 area, the support area of October’s consolidation. This area is also reinforced by a falling speedline from mid-October’s high of 1.2887 as well as the 200-period SMA in the 4H chart.

Scenario 2:
If the reading is 0.5% or better, the market EUR might have a better chance to stabilize. Even if there are sellers in the 1.26-1.2650 area, we should limit or at least be cautious of our bearish outlook for example to the 1.24-1.2450 area.

Scenario 3: 
If the reading is 0.0% or negative, we might see a sharp bearish continuation with price falling towards 1.2360 and with risk of falling lower to 1.23 in the short-term. In this scenario, a pullback should see sellers in the 1.2360-1.24 area.

Note:
When we look at the 4H chart, we can see that the market is still bearish, so we should have a bias to the downside if the GDP data is basically in-line or worse than expected. Now, if the bearish reaction to poor data gets reversed, and price breaks above 1.25, we should consider the possibility that the market has already priced in a slowdown in Europe, in which case we should expect some significant consolidation until the next ECB monetary policy statement.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.