Q4 GDP could see renewed bids on the US Dollar

The advance fourth quarter US GDP is scheduled for released later today during the US trading session. Expectations are high, calling for a 3% GDP growth in the fourth quarter, after a stellar 5% GDP growth rate during the third quarter of the year.

Recent economic data had made some market participants question the validity of the US Federal Reserve’s rate hike plans, which were earlier expected to lift off sometime in June. However, as the data from the past few months has shown, there were doubts in regards to the interest rates. In fact, Morgan Stanley economists had revised down their forecasts, pushing the US interest rate hikes to as far as January 2016.

The most recent FOMC statement, however, managed to put to rest all doubts as the statement was read as being quite dovish. Shrugging off the inflation weakness in the short term, the Fed reiterated its goal towards hiking interest rates regardless. With the jobs sector managing to grow at a steady pace, with the exception of the average hourly earnings, on the headline, the economic data continues to support the Fed’s view of a June 2015 rate hike.

In this aspect, today’s GDP reading will be of importance, albeit considering that the GDP is bound for revisions further down the line. Despite the further revisions, the advance or preliminary GDP does shed light on the fact whether growth is in line with the trend or below trend.

The Dollar Index was seen weaker against its peers for the most part of this week, a trend not quite seen for quite a while. Gold futures as well as the Euro, a single currency managed to rally on the Greenback’s weakness, but all that might be changed today, depending on how good the initial GDP numbers come out to be.

Besides the GDP readings, of importance will also be Employment cost index, which is slightly tipped to be lower at 0.6%, after the previous reading of 0.7%.

Technically, the Dollar index printed a shooting star pattern on Monday, the 26^th and price action since then has been subdued following a bearish candlestick pattern. On Wednesday, after the FOMC statement was concluded, the Dollar Index managed to make a few gains and in the process formed an inside bar following through with a Doji candlestick pattern yesterday. From the technical analysis aspect, we could, therefore, expect either a strong move to the downside or probably a push to the upside, potentially breaking above the highs at 95.85.

The key level to watch will be 93.96, where a break below this price level could possibly see further weakness in the Greenback, which could potentially take the Buck lower to 91.57, the much needed short-term correction to the bullish rally.