US GDP Down, Housing Up – Paxforex

US GDP was revised sharply lower today which pressured the US Dollar. First-quarter GDP was initially stated at a contraction of 1.0%. US equity markets brushed off the disappointment and rallied higher while the US Dollar struggled as forex traders sold off the US currency. The headwinds grew as other developed countries perform much better than the US which put the US Dollar out of favor.

Despite the US Federal Reserve’s cutback in quantitative easing which should be positive for the US Dollar the greenback has found little support and was unable to make any significant moves higher. Today’s revision showed that first-quarter GDP was much worse than previously reported as the revised GDP was reported at a contraction of 2.9%, almost triple the initial assessment. Personal consumption was the biggest reason for the sharp revision which was slashed from an initial 3.1% gain to a 1.0% increase.

The US consumer did not spend as much as markets have priced in and should this trend continue in the second-quarter the US could flirt with a technical recession once again. Today’s GDP figure was the worst in over five years and while expectations for the second-quarter are calling for an expansion in excess of 3.5% forex traders should be careful with the US Dollar as there are more headwinds ahead.

In addition to the GDP disaster in the first-quarter durable goods orders contracted 0.1% in May. Durable goods orders excluding transportation also contracted by 0.1%.  The second-quarter may not be as strong as economists have initially predicted which makes the first look at second-quarter GDP in July a very important report. The US Dollar as given back the gains it made over the past few trading session, but trades at either solid support or resistance levels.

The US housing market did show signs of extreme strength in May as new home sales surged by 18.6% to 504,000 while existing home sales rose 4.9% to 4.89 million units. Traders need to be aware that the current strength may be due to the cutbacks in stimulus which could pressure rates higher and make housing less affordable. Potential home buyers may have decided to buy now which has borrowed from future performance.

Written by Paxforex