Ahead of the key FOMC event risk, we got the advanced US GDP data for Q1. The data set disappointed and the greenback was slammed across the board except against the USD/JPY. Let’s take a look at the GDP release and the EUR/USD’s reaction.
Advanced GDP q/q (Q1): 0.2%
Previous: 2.2% (revised down from 2.6%)
(click to enlarge: source: forexfactory.com)
There are a few reasons this can shift the USD’s medium-term outlook from neural-bearish to bullish.
1) Q4 GDP was revised down. The FOMC based its rate hike plans on q4 GDP and its projections for Q1 GDP.
2) Q1 GDP disappointed. The FOMC also had very upbeat outlook for growth in 2015 heading into the year. Now we see that these projections were way off, and the rate hike plan will need to be shelved.
The reason the USD has been bullish across the board since mid-2014 was that traders were pricing in a rate hike by mid-2015. In March and April, we saw enough data to invalidate this expectation and many saw a rate hike being postponed until the end of the year. Now, as the trend of disappointing economic data continues to roll, traders might price out even a rate hike this year.
The daily EUR/USD chart shows a market flattening and essentially forming a price bottom. Price action looks poised to push towards the 1.1460-1.15 support/resistance area. Let’s see what happens after the FOMC statement. If price can hold above 1.10, we are most likely going to test the 1.1460-1.15 area.
If price falls back below 1.08, then we are likely going to see bearish continuation with pressure on the 1.0462 low on the year, and risk further downside risk. The fundamentals suggest we should be ready for the bullish correction, but the technical picture suggests we should still limit the bullish outlook until the price bottom is tested successfully as support, and the daily RSI can hold above 40 after a pullback.
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