What to expect from the US GDP report and its impact on EUR/USD

• GDP in the US is expected to have risen in the final quarter of 2022.
• 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: Factors impacting growth

The release of the preliminary GDP print for the fourth quarter, scheduled for Thursday at 13:30 GMT, is a major event on the US economic calendar. The first estimate is anticipated to show that the world’s largest economy expanded at a rate of 2.6% per annum during the October-December period.

Deutsche Bank economic research team believes the US GDP figure for Q4 will be strong: “We’ll see how growth was faring going into this year with Q4 US GDP on Thursday. Our economists expect +3.2% annualised (consensus +2.7%). Interestingly they expect +1.8% for Q1 with H2 being where the US recession hits. Consensus on Bloomberg is around 0% for Q1 so that’s a potential battleground once actual hard data comes through.”

Examining the GDP print and its role in shaping EUR/USD

The United States GDP report is scheduled to be made public at 13:30 GMT on Thursday, with the US Dollar experiencing a five-month low following the Federal Reserve dovish pivot. The EUR/USD pair is currently supported and remaining close to the 1.0900 psychological mark. A weaker US data report could lead to a fresh decline in the USD and an added boost for 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, a modest pullback in the US equity futures lends some support to the safe-haven buck and keeps a lid on any meaningful upside for the major.

Meanwhile, the backward-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 toward the 1.1000 level.

Eren Sengezer, Analyst at FXStreet, offers a brief technical outlook for the major and writes: “EUR/USD continues to trade with the ascending regression channel coming from early January after having tested the lower limit of it on Wednesday.”

Eren also outlines important levels to trade the EUR/USD pair: “1.0900 (psychological level, mid-point of the channel) aligns as interim resistance. Once EUR/USD stabilizes above that level and confirms it as support, it is likely to face hurdles at 1.0930 (multi-month high) and 1.0980 (static level, former support) before eyeing 1.10000 (psychological level).”

“On the downside, 1.0880 (lower limit of the channel, 20-period Simple Moving Average (SMA)) forms first support. If that level fails, the pair could extend its slide toward 1.0850 (50-period SMA) and 1.0800 psychological level,” he further adds.

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