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NY Open: Will GDP stave off disaster?

Forex 4 minutes to read
Michael O’Neill

FX Trader,

Summary:  Equity markets remain in a funk following earnings disappointments from Amazon and Alphabet, but US GDP came in ahead of forecasts into the New York bell.

Amazon (AMZN: Nasdaq) and Alphabet (GOOGL: Nasdaq) didn’t do global equity markets any favours when their earnings releases disappointed analysts, but this morning’s GDP data may have been the balm for the burn. However, the evidence is sparse in early trading. 

Wall Street is taking it on the chin at the market open. The tech-heavy Nasdaq is down 2.25%, the S&P 500 is down 1.5%, and the Dow Jones Industrial Average dropped 1.02%. However, this morning’s GDP report lifted equity futures off their lowest levels, and there is still hope for additional gains into the weekend.

US GDP rose 3.5% in Q3, beating the 3.3% forecast. The US Bureau of Economic Analysis attributed the gain to increases in personal consumption (PCE), private industry investment. and federal government spending. FX markets channelled Shaina Twain and sang “that don’t impress me much”; the US dollar stopped rising, but the retreat has been shallow.

Real GDP
The US Dollar Index rally from the end of September is approaching good resistance in the 96.90 area. If this area contains the top side, the dollar should retreat.

Next week is going to be busy. FX volatility may surge thanks to a couple of major central bank policy meetings, month-end portfolio rebalancing flows, and the US nonfarm payrolls report. The Bank of Japan policy meeting is Wednesday, and the Bank of England follows on Thursday. 

Sterling could get a little wobbly around Monday’s UK budget announcement. The BoE is expected to stand pat, handcuffed by the dilemma around Brexit. Eurozone GDP is expected to be unchanged (0.4% quarter-on-quarter), but Wednesday’s inflation data may cause a stir if higher than expected, especially since European Central Bank president Mario Draghi suggested that the December meeting may give increased clarity on the ECB’s outlook.  

Wednesday is month-end which means portfolio rebalancing flows. The substantial decline in US equity indices this month suggest large buying of US dollars, providing current levels hold. The week ends with US nonfarm payrolls data; inclement weather in October may distort the results.
USD Index
US Dollar Index (source: Saxo Bank)

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