Global Growth Key for Forex Big Guns
Growth is the name of the game this week with the release of GDP figures from the US, UK and Germany. Given the slowed growth situation in Asia, it becomes increasingly important to gauge the global impact. Of course, that means the effect on the world’s largest and most developed economies. The first GDP release comes out on Tuesday in Germany, followed later that day by the preliminary 3rd quarter results for US GDP.
Then on Friday, we’ll close out the week with the preliminary figures for UK 3rd quarter growth. Regardless of the preliminary nature of the US and UK numbers, the outcomes will shed light on potential changes to monetary policy. For Germany, the Eurozone’s most powerful economy, the GDP outcome will highlight the effectiveness of ECB QE efforts.
Dollar Bulls Anxiously Await Growth Estimates
Though the release of US GDP figures follow Germany’s there is no question of their utmost importance. The US GDP figures will shed more light on the possibility of a rate hike from the Fed at next month’s policy meeting. Late in October, the US Bureau of Economic Analysis released its first estimate of US GDP for the 3rd quarter. According to the BEA, annualized growth rose to 1.5%, falling from the previous quarter’s figures and just missing estimates, On Tuesday, we will get the second GDP estimate.
Given that US business inventories were unexpectedly higher in September, analysts are hopeful that the first estimate of 3rd quarter GDP will be upwardly revised. If GDP beats estimates, consider that a reinforcement of an impending rate hike. Naturally, that would support the Dollar and could give Wall Street a boost amid the improved growth outlook. Any disappointment will hit the Dollar but would give Gold and the Dollar’s peer currencies a lift.
A Beat for German GDP Could Lift Euro
As the Eurozone’s largest economy, Germany’s GDP figures establish the foundation for Eurozone growth as a whole. Germany’s preliminary GDP figures, which came out earlier this month, showed growth slowing to 0.3%.
Now, while that did meet with expectations, it was a disappointment nonetheless, falling from 0.4% in the previous quarter. If Germany’s GDP is a surprise beat, it could halt Euro selling (at least temporarily). At the same time, if GDP beats forecasts it would give the German DAX and other European indices a boost. If Germany’s GDP disappoints, however, both the Euro and the European benchmarks could be hit.
Sterling Bulls Eye Last Q3 GDP for Direction
Last but not least, on Friday we get the 3rd quarter release of GDP for the UK. This will be the second and final release of the 3rd quarter numbers. The first estimate which came out late last month showed growth slipping to 0.5% from 0.7%, missing analysts’ expectations of a decline to 0.6%. Better-than-expected GDP would favor the Pound Sterling, providing a much needed boost. However, if the latest release does indeed confirm that growth slowed in Q3, that would likely dent Sterling. That’s because investors would be convinced that the Eurozone’s slowdown is more closely correlated than previously thought.
Down to Business
If US GDP is a beat, we could see another week that could end with a higher dollar. Likewise, a beat for the UK and Germany would lift the Pound Sterling and the Euro, respectively. An across-the-board improvement in growth could, paradoxically, weaken the US Dollar. That would suggest that other economies are beginning to catch up with the US. On the other hand, that would provide a lift to the larger indices, especially the S&P500 and the German DAX which tend to benefit from global growth.
On the plate
German GDP (Tuesday) – If German Q3 GDP beats estimates it will favor both the Euro and European Indices.
US GDP Growth(Tuesday)- Possibly the main event of the week. If US Growth for Q3 will be a beat , the Dollar is expected to gain. Unless all other GDP releases will be a beat as well.
US Durable Goods(Wednesday)- If US Durable Goods ex transportation returns to positive territory, it is expected to benefit both the Dollar and Wall Street.
UK GDP(Friday)- If the UK’s third quarter GDP comes out better than estimates it will favor the pound sterling.
Chart of the week: