EURO-ZONE Q4 GDP COMES IN AT .6%, 2.7% ANNUALIZED

This week’s busy calendar continued this morning with the release of Euro-Zone GDP for the 4th quarter of 2017. The data came in at .6% for the quarter, or 2.7% annualized, both of which hit the expectation right on the nose, and this further illustrates the consistent stream of growth that’s started to show in the European economy over the past year. GDP in the Euro-Zone sank down to .3% in the 2nd quarter of 2015 and stayed below .5% all the way until the 4th quarter of 2016. But – since then, GDP has remained rather brisk, coming in at .6 or more for each of the past five quarters. This is one of the large reasons for the build of expectations around the ECB to begin looking at various strategies to taper QE, and this is also one of the primary reasons that so much strength has shown in the single currency in response to strong data.

It’s notable that growth in Europe has begun to outpace that of the United States. In Q4 of last year, the U.S. grew at 2.6% annualized, and the Euro-Zone beat that by .1% to come in at 2.7%. An important note – both of these data points are subject to revision, so this can change; but with what we have now there is a fairly clear case of divergence: Europe is growing as quickly as the United States if not more so, and the Euro-Zone is still being provided with massive liquidity via ECB QE, while the Federal Reserve stares down their sixth rate hike in the past couple of years in March.

As we’ve been saying – if this global growth story is to continue, there will be considerable shuffling that needs to take place, with the ECB pulling back on stimulus while the Federal Reserve slows down rate hikes; and this is the likely reason for the continuation of that robust EUR/USD trend that just has not stopped, even when the ECB extended QE in the 4th quarter of last year.

This morning’s GDP print helped EUR/USD price action to break a recent string of short-term losses. We looked at the U.S. Dollar clawing back yesterday, and this equated to a pullback in that bullish trend in EUR/USD. Prices moved down to support at 1.2335 yesterday morning, and after a recurrent inflection just ahead of the European open this morning, bulls took over to drive prices higher. We’ve now broken above the bearish trend-line on the hourly that had showed up, and the big question is whether we see bulls show-up at higher-low support around 1.2375-1.2390.