Soybean dumping and buying before tariffs helped trade and the GDP, but the market still doesn't like it

Forex Signals US Session Brief, July 27 – Market in a Limbo Between the ECB and the US GDP

Posted Friday, July 27, 2018 by
Skerdian Meta • 4 min read

Yesterday the market was waiting for the European Central Bank ECB to shed some light regarding its economic forecast and more importantly, about the future monetary policy. Many ECB members have mentioned next summer for the earliest rate hike and there were hopes for a definite date. But, the ECB President Mario Draghi left it open with the possibility of the rate hike coming after, not before, the summer of 2019. The market took it as a dovish signal and the Euro has turned bearish. Although, all major currencies seem bearish today against the US Dollar.

One of the reasons that the US Dollar is seeing some strong bids today is the fact that the US GDP report will be released soon. The first reading of the Q2 GDP figures is expected at 4.2%, which is pretty upbeat. Although, Donald Trump has hyped this GDP report, hoping that it might reach 5%. On the other hand, the Q1 GDP was revised lower to 2% from 2.3%, but the market doesn’t really care for what has gone and Q1 is way behind us. Trump might get a bonus this time since the Soybean producers have dumped all their production in that quarter, but that will weigh on the Q3 GDP numbers.

The European Session

French Q2 Flash GDP – The Q2 GDP was expected to have grown by 0.3% but it came at 0.2% this morning. Besides that, the previous reading was also revised lower to 0.2% from 0.3%. Last year, the GDP was growing at 0.5%-0.6% quarterly, so the bearish turnaround this year to 0.2% doesn’t look good and it will likely impact the Eurozone GDP negatively.

German Import Prices – Import prices grew by 0.5% this month in Germany, up from 0.3% expected. Although it is down from 1.6% that we saw last month, this is a respectable number nonetheless.

French Consumer Spending – The spending by French consumers was expected to have grown by 0.6% this month, but the headline number of the report came at 0.1%. It is a disappointing reading, but last month was revised higher from 0.9% to 1.0%. Although, that came after a 1.55% decline in the previous month. So, there is no trend here as this report is all over the place.

Trump Feels optimistic About Q2 GDP – I heard rumours today that Donald Trump was hoping that Q2 GDP figures would be above 5%, but even 3.8%-3.9% would be acceptable. Well, he will play a strong reading in his favour and will surely blame a soft reading on the rest of the world.

Twitter Follows Facebook Down the Sink – Yesterday, Facebook shares took a dive, Today Twitter shares followed suit. Twitter opened with a bearish gap and from what I can see, it was down around 10% at some point despite the revenue coming as anticipated. Perhaps, investors were hoping for something better.

The US Session

US Q2 Advance GDP – This is the first reading of the Q2 GDP and it came slightly lower than expected. The consensus was for a 4.2% reading but came at 4.1%. That’s a great number nonetheless, although Donald Trump would have liked a higher reading. Although, it might get revised up or down in the next two estimates. The previous reading was revised lower by 0.3%.

US Q2 GDP Price Index – The price index grew by 3.0% in Q2 which is by far the highest reading in a very long time. This means that inflation is picking up the pace which will put further pressure on the FED to keep hiking interest rates, something that Trump hates.

US Personal Consumption – One of the main components of the GDP is the personal consumption, since it shows how most Americans feel about their incomes and the future of their jobs. Personal consumption grew by 4.0% against 3.0% expected which is very strong, so that should offer some consolation for the USD since it is sliding lower on the lower GDP headline number.

Revised US Consumer Sentiment – The consumer sentiment in the US is expected at 97.1 points, same as last month. The consumer sentiment used to be at above 101 points back in March, but it has declined steadily and today’s number confirms the bearish trend if it comes as expected or lower.

Revised US Inflation Expectations – Last month, inflation expectations came at 2.9% in the US. There is no estimate for today, but considering the jump in the GDP price index, it is possible that inflation expectations will be upbeat as well.

Trades in Sight

Bullish Bitcoin

  1. The trend is still bullish
  2. The retrace lower is complete on the H4 chart
  3. The 50 SMA is providing support
  4. Stochastic is oversold
  5. Previous resistance will likely turn into support

The 50 SMA (yellow) is standing firm

Bitcoin has retraced lower in the last three days after failing to break above the 50 SMA on the weekly chart. But, the bearish retrace seems to be almost over now that the stochastic indicator is well oversold on the H4 timeframe. As you can see from the chart above, the 50 SMA is providing support to Bitcoin, standing at $7,735 according to my broker. Besides the 50 SMA, this area was the high last week which means that it provided resistance. Previous resistance levels usually turn into support when they are broken, so this level will add additional strength to the 50 SMA. It is possible that we see a bullish reverse from here, although I would like to get another confirmation from a candlestick formation. If a see a doji or a pin on the H4 chart, then that will be the signal to go long.

In Conclusion

The US Dollar has been bullish in the last 24 hours, but is under some pressure now, after the release of the GDP report. The report was pretty good despite inventories which were a drag, but this means that firms will order more materials in the coming months since inventories are down. However, I see this as an opportunity to go long on the USD once the decline is over.

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