U.S. Stocks Retrace On Dismal Economic Data - Forex News by FX Leaders

U.S. Stocks Retrace On Dismal Economic Data

Posted Thursday, July 30, 2020 by
Shain Vernier • 2 min read

There’s bad economic data and then there’s bad economic data. This morning brought the latter, with U.S. GDP posting an all-time record decline. One would think that this type of report would send stocks tumbling; and, initially, it did. However, the DJIA DOW (-237), S&P 500 SPX (-18), and NASDAQ (+19) have pared losses, trading well off intraday lows.

Without further delay, here’s a look at this morning’s key economic releases:

Event                                                               Actual              Projected          Previous

Continuing Jobless Claims (July 17)            17.018M           16.200M             16.151M

Core Personal Consumption (Q2)                   -1.1%                   1.0%                   1.6%

GDP (Q2)                                                             -32.9%              -34.1%                 -5.0%

Initial Jobless Claims (July 24)                        1.434M              1.450M               1.422M

As we’ve talked about over the past few months, the Jobless Claims numbers can be misleading due to enhanced COVID-19 benefits. These benefits are due to expire tomorrow. Be on the lookout for a dramatic downturn in Jobless Claims beginning August 13.

No doubt about it, the Q2 GDP data is about as bad as it can get. However, the -32.9% beat expectations (-34.1%). Right now, the pressure is on Q3 GDP. If it disappoints, then risk assets will likely be in for an extended period of pain.

GDP Data Prompts S&P 500 Reversal

Below is a look at the September E-mini S&P 500 as of Wednesday’s close. Since then, the strong week has pulled back and the 78% Retracement (3125.75) is coming into view.

September E-mini S&P 500 Futures (ES), Weekly Chart

For now, there are two levels worth watching in this market:

  • Resistance(1): All-Time High, 3396.50
  • Support(1): 78% Retracement, 3125.75

Bottom Line: At this point, my outlook toward the S&P 500 remains bullish. If today’s dreadful GDP data prompts a retracement, then buying the dip may not be a bad way to play the action. 

Until elected, I’ll have buy orders queued up in the September E-minis from 3129.75. With an initial stop loss at 3123.75, this trade produces 24 ticks on a standard 1:1 risk vs reward ratio.

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About the author

Shain Vernier // US Analyst
Shain Vernier has spent over 7 years in the market as a professional futures, options and forex trader. He holds a B.Sc. in Business Finance from the University of Montana. Shain's career includes stretches with several proprietary trading firms in addition to actively managing his own accounts. Before joining FX Leaders, he worked as a market analyst and financial writer.
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