On Wednesday, March 04, Eurostat is scheduled to release the Eurozone’s Gross Domestic Product (GDP) report for the fourth quarter. GDP report shows the value of goods and services produced within a specific geographical boundary over a specific period of time. The report will be released at 10:00 GMT.
The Eurozone grew at 0.5% in the fourth quarter as compared to the same growth in the same quarter of the year before, according to the median projection of different analysts, surveyed by Bloomberg. Moreover, the shared economy grew at 0.3% in the fourth quarter compared with 0.1% growth in the quarter before, according to the forecast. Generally speaking, a high growth reading is seen positive for the economy and vice versa. So a better than expected actual outcome will be bullish for EUR/USD and vice versa.
Other fundamental events
A few other fundamental events relating to the Eurozone and the US economy are also due on the same day. At 9:00 GMT, Markit Economics will release the Services Purchasing Managers Index (PMI) reports of Spain, Italy, France, Germany and the Eurozone for the month of February. Analysts have predicted better readings for the Services PMIs in February as compared to the month before. At 10:00 GMT, Eurostat will release the Eurozone’s retail sales report for the month of January. The retail sales declined by 0.4% in January as compared to 0.1% decline in the month before, according to the forecast.
Later in the US session, the Institute of Supply Management (ISM) will release the non-manufacturing or services PMI reports for the US economy. Activity in the US services sector dropped to 53.5 points in February as compared to 54.0 in the month before, according to the median projection of various analysts surveyed by Bloomberg. A worse than expected PMI reading will be seen as bullish for EUR/USD and vice.
As of this writing, EUR/USD is being traded around 1.3755. On upside, the shared currency might face the two major resistance levels that are 1.3788, 76.4% fib level, and 1.3891, the swing high of 27th December. On downside, the pair is expected to find the two critical support levels which are 1.3680, 50% fib level, and 1.3573, 23% fib level, as demonstrated in the following chart.
It is pertinent that the pair has already turned the bias into bullish by printing a Higher High (HH) on the daily chart.
If the Eurozone GDP report comes better than expectations, then buying EUR/USD on dips can be a good strategy. 1.3630-80 is currently a great buying area for the shared currency, the stop can be placed at 1.3600 and the target should be 1.3900. Selling is certainly not preferred unless the pair breaks the 1.3640 support zone.
Economists are giving too much importance to the Eurozone GDP report for the fourth quarter. A surprise fall in the growth rate might prompt the European Central Bank (ECB) policymakers to consider some new monetary policy instruments such as Quantitative Easing (QE) or negative deposit rate.
To contact the writer of this story: Usman Ahmed at email@example.com