US GDP Growth rate Beats expectations to 3.5%

US GDP Growth rate Beats expectations to 3.5%

By: James Ansher | Where To Trade | On:31-10-2014 03:40
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Key Highlights

  • Growth expanded by 3.5% in the third quarter
  • Markets expectations surpassed
  • Fall form previous reading
  • EURUSD, GBPUSD Spike up S & P 500 up 0.62%
  • Bullish USD outlook reinforced

The US GDP growth figures surprised the markets by a 0.5% deviation from the expected. In the third quarter this year, The US economy expanded by 3.5%. This represents a 1.1 fall from the growth registered in the previous Q2 and a surprise of 0.5% from the widely expected 3% growth.

 

Market reaction

Immediately after the release, the USD pairs whiplashed as the market participants tried to get a hold of the consensus of how to interpret the data. The EUR/USD spiked 30 pips down within a minute of the release only to regain and trend on the other direction.

By the close of New York the pair had gained 70 pips to the highs of 1.263. The GBPUSD similarly spiked 30 pips down and regained to reach the highs of 1.603 80 pips above the trough. The GDP readings had temporarily sparked confusion into the markets.

 

Market expectations

The USD bulls have had their party dampened by the potentially bearish news. Yesterday the announcement by the FED that the quantitative easing program had come to a conclusion saw the USD gain strength against all the major pairs. Gold, silver and other commodities similarly were affected by the strengthening dollar and their prices took a downward turn. Today however, the 3.5% growth reading has cast doubts in markets about the commitment of the USD bulls. We have seen see the dollar shed back some of the gains it got yesterday although crucially we have retained most of them.

Market analysts had anticipated a 3.0% expansion for the third quarter and the 0.5% deviation as a shock to the markets we see this reading as further confirmation of the strength of the US economy and a clear indication on which side of dollar trades we ought to be taking.

Oil prices have been falling due to increased supply from new US mining activities coupled with the inability of OPEC members to cut back their production. Consequently the cheaper oil prices have distorted prices in the economy to depress prices lower. Despite this factor, the GDP reading was able to beat our expectations. Considering the odds that the economic growth presents that the economic growth would be near 3.0%, our analysis is that a 3.5% reading is a bullish signal for the USD despite the market having driven the pair on the other side. The S & P 500 has already gained 0.63% to 1994.6 by New York open. We should anticipate the USD to follow suit.

 

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Putting it all Together

Unemployment in the US is at 5.9% the lowest it has been in 6years. We anticipate that in the coming months consumers will begin spending more in the US and this will translate to higher economic activities which are bullish for the dollar.

We anticipate seeing the USD regain all the lost ground as the bearish speculators run out of steam in the short term. In the long run, we fully expect the EURUSD to dip below the years low by the close of the year. A great trading approach here is to retain our bias for a bullish dollar.

 

James Ansher

James Ansher

When there is a will there is a trade

A successful Forex trader and expert advisor

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