The advance reading for 2Q U.S. GDP is forecasted to show that the recession is abating as a contraction of 1.5% is forecasted compared to last quarter’s 5.5% decline. Domestic and global stimulus is anticipated to have slowed the largest downturn since WWII which has raised expectations that the economy could return to an expansion phase by next quarter. Fundamental Outlook The advance reading for 2Q U.S. GDP is forecasted to show that the recession is abating as a contraction of 1.5% is forecasted compared to last quarter’s 5.5% decline. Domestic and global stimulus is anticipated to have slowed the largest downturn since WWII which has raised expectations that the economy could return to an expansion phase by next quarter. Improvement is expected in exports (-30.6%) as global demand has improved as it has become evident that the worst has past; and gross private investment (-48.9%) as firms ready themselves for the anticipated expansion. However, rising unemployment is forecasted to sink personal consumption by 0.5% reversing the 1.4% gain from the prior period. Government spending could also be a disappointing component as only 10-15% of the stimulus package has been spent which will fail to make up for the declines at the state and local level which have seen tax revenues dry up. If GDP figures show that the recession is nearing an end then we could expect a bout of risk appetite which could lead to dollar weakness if its correlation to risk holds. This would validate the bullish EUR/USD technical outlook and justify a long position. However, a near return to growth could lead to support for the greenback as demand for U.S. assets should increase with the economy on the verge of recovery. We could also see dollar support if the growth figures significantly disappoint sending traders to the sidelines and keeping the positive risk aversion correlation. A 4th wave triangle is complete and expectations are for an upside break through 1.4340 and then 1.4720. I wrote Tuesday that “failure ahead of 1.4340 suggests that wave i of 5 (of C) may be complete. A small second wave could reach 1.4035/85 (Fibonacci support) before the advance continues. As such, short term traders may wish to trade from the short side the next several days. Longer term traders should wait for a better buying opportunity.” That second wave should be close to complete. There is potential support at 1.3970 and just above 1.3900 (support line and Fibonacci extension).

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