ATFX Forex Market: US Q1 GDP data is coming, market expectations are relatively pessimistic.

ATFX Forex Market: The CPI data and non-farm payroll report released this month both performed well, indicating that the US macroeconomy seems to be in a rapid recovery phase: inflation has bottomed out and rebounded, and the labor market is also in short supply. Expectations for a Fed rate cut have also been continuously lowered with the release of strong data, and the first rate cut, initially expected in June, has now been pushed back to October.

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In addition to CPI and the non-farm payroll report, GDP data is another key indicator for measuring macroeconomic trends. Today at 20:30, the US Department of Commerce will release the preliminary annualized quarterly rate of the US Q1 real GDP, with the previous value at 3.4% and the expected value at 2.4%, indicating a significant drop of 1 percentage point. Historically, in Q4 2021, the US GDP quarterly annualized rate peaked at 7%, followed by a downward trend. There was a rebound in Q3 2023, reaching a minor high of 4.9%, but it fell back to 3.4% in Q4. If the Q1 GDP quarterly annualized rate continues to decline this year, the US GDP data will show two consecutive drops, moving closer to a "triple-drop" technical recession.

GDP measures the total output of goods and services over a period of time. If GDP growth is slower than CPI growth, it means the total output of goods and services has declined, indicating that the macroeconomy has entered a phase of substantive recession. The US CPI annual rates for the first three months were 3.1%, 3.2%, and 3.5%, averaging 3.27%. If the announced Q1 GDP growth rate exceeds 3.27%, the US macroeconomy remains in a phase of substantive recovery; if it falls below 3.27%, the US macroeconomy may have entered a phase of substantive recession. Given that the market expects Q1 GDP growth to be only 2.4%, the likelihood of a substantive recession in the US macroeconomy is high.

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In the US bond market, the three-month Treasury yield is 5.39%, higher than the six-month Treasury yield of 5.37%, indicating an inverted yield curve. However, the inversion margin is only 0.02 percentage points, less than the magnitude of a single rate cut (10 basis points/0.1 percentage points), suggesting strong noise and weak forward guidance for monetary policy. The one-year (52W) Treasury yield is 5.17%, down 0.2 percentage points from the six-month Treasury yield of 5.37%. The significant gap between the two suggests that the Fed's first rate cut is highly likely to occur in six months, i.e., October this year. If today's GDP data indeed shows a significant drop as expected, the critical period for yield curve inversion in the Treasury market may move forward, increasing the probability of a first rate cut in June.

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The chart above shows the daily trend of the US Dollar Index. Influenced by weakening rate cut expectations, the index has experienced a smooth rebound over the last 80+ candlesticks. If today's GDP data performs as well as the CPI and non-farm payroll reports, rate cut expectations will continue to weaken, and the dollar index may find support at the middle band in the chart before moving toward the upper R band. Conversely, if the GDP data performs poorly, rate cut expectations will strengthen, and the short-term pullback of the dollar index may turn into a mid-term decline, with the middle band failing to provide effective support, making the lower S band the next potential support level.

ATFX Risk Warning, Disclaimer, and Special Statement: The market carries risks, and investment requires caution. The above content represents only the analyst's personal views and does not constitute any operational advice. Do not consider this report as the sole reference. At different times, the analyst's views may change, and updates will not be notified separately.