- US GDP is forecast to grow at an annual rate of 2.6% in Q4.
- The US Dollar value will probably continue to be determined by risk perception.
- After data released by US Bureau of Economic Analysis, markets will pay close attention to Q4 earnings reports.
The Gross Domestic Product (GDP) report for the fourth quarter, as released by the Bureau of Economic Analysis (BEA) on January 26th, will show an expansion of the US economy at an annualized rate of 2.6%, as per market expectations, after the 3.2% expansion recorded in the third quarter’s GDP report.
The US Dollar (USD) has been weakening against its major rivals following the Nonfarm Payrolls data for December and the GDP report could trigger the next directional move on the US Dollar.
US GDP forecast: Economic projections
Thursday’s US economic docket highlights the release of the preliminary GDP print for the fourth quarter, scheduled at 13:30 GMT. The first estimate is expected to show that the world’s largest economy expanded by 2.6% annualized pace during the October-December period.
Yohay Elam, FXStreet Senior Analyst believes US Gross Domestic Product data will come out better than expected: “Economists expect the first release of output figures for the latter quarter of 2022 to show an annualized expansion of 2.6%, slower than the 3.2% clip recorded in the three months ending in September. There are three reasons to expect a better outcome – Atlanta Federal Reserve estimates presenting a rosier picture, falling inflation and the Chinese re-opening effect.”
When is GDP print released and how can it affect EUR/USD?
The GDP report is scheduled for release at 13:30 GMT on Thursday. With the US Dollar plummeting to over a seven-month low in the wake of a dovish pivot by the Federal Reserve (Fed), the EUR/USD pair is supported and holding slightly above the 1.0900 psychological mark. Weaker US data details could trigger a fresh leg down in the USD and provide an additional boost to the major pair.
Ahead of the key release, the US Dollar comes under some renewed selling pressure amid retreating US Treasury bond yields and assists the EUR/USD pair to regain some positive traction on Thursday. That said, the uninspiring performance of the US equity futures lends some support to the safe-haven USD and keeps a lid on any meaningful upside for the major.
Meanwhile, the backwards-looking data might do little to influence market expectations about the Fed’s next policy move or provide any meaningful impetus to the Greenback. That said, an upward surprise of the US GDP print could revive bets for a prolonged policy tightening by the Fed and prompt some near-term short-covering around the USD.
Conversely, a weaker-than-expected reading should be enough to reaffirm bets that the US central bank will pivot to somewhat a less hawkish stance. This could be enough to exert additional downward pressure on the US Dollar and allow the EUR/USD pair to push woard the 1.1000 level.
Eren Sengezer, Senior Analyst at FXStreet, draws this key targets for the EUR/USD bulls: “On the upside, 1.0930 (multi-month high set on January 23) aligns as interim resistance. Once EUR/USD rises above that level and starts using it as support, it could push higher to 1.0980 (former support, static level) and target the all-important 1.1000 psychological level.”
Eren also outlines important levels to trade the EUR/USD pair on a bearish scenario: “The pair continues to trade within an ascending regression channel coming from early January. The bottom of that channel forms key support at 1.0880, which is also reinforced by the 20-period Simple Moving Average (SMA). If that support fails, the pair could extend its slide toward 1.0850 (50-period SMA) and 1.0800 psychological level.
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About US Gross Domestic Product
The Gross Domestic Product Annualized, released by the US Bureau of Economic Analysis, shows the monetary value of all the goods, services and structures produced within the United States in a quarter. GDP Annualized is a gross measure of market activity because it indicates the pace at which a country’s economy is growing or decreasing. Generally speaking, a high reading or a better than expected number is seen as positive for equities, while a low reading is negative.