EUR/USD: U.S. first-quarter GDP was higher than initially estimated
Macroeconomic overview:
U.S. GDP increased at a 1.2% annual rate instead of the 0.7% pace reported last month, the Commerce Department said on Friday in its second GDP estimate for the first three months of the year. That was the worst performance in a year and followed a 2.1% growth rate in the fourth quarter.
The economy's sluggishness, however, is probably not a true reflection of its health, as first-quarter GDP tends to underperform because of difficulties with the calculation of data that the government is working to resolve.
The government raised its initial estimate of consumer spending growth for the first quarter, but said inventory investment was far smaller than previously reported. The trade deficit also was a bit smaller than estimated last month.
The GDP report showed an acceleration in business spending equipment was not as fast as previously estimated. Spending on equipment rose at a 7.2% rate in the first quarter rather than the 9.1% reported last month.
Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose at a 0.6% rate instead of the previously reported 0.3% pace. That was still the slowest pace since the fourth quarter of 2009 and followed the fourth quarter's robust 3.5% growth rate.
Businesses accumulated inventories at a rate of USD 4.3 billion in the last quarter, rather than the USD 10.3 billion reported last month. Inventory investment increased at a USD 49.6 billion rate in the October-December period. Inventories subtracted 1.07 percentage point from GDP growth instead of the previously estimated 0.93 percentage point.
The government also reported that corporate profits after tax with inventory valuation and capital consumption adjustments fell at an annual rate of 2.5% in the first quarter, hurt by legal settlements, after rising at a 2.3% pace in the previous three months.
The first-quarter weakness is a blow to President Donald Trump's ambitious goal to sharply boost economic growth. During the 2016 presidential campaign Trump had vowed to lift annual GDP growth to 4%, though administration officials now see 3% as more realistic.
Trump has proposed a range of measures to spur faster growth, including corporate and individual tax cuts. But analysts are skeptical that fiscal stimulus, if it materializes, will fire up the economy given weak productivity and labor shortages in some areas.
Though the economy appears to have regained some speed early in the second quarter, hopes of a sharp rebound have been tempered by weak business spending, a modest increase in retail sales last month, a widening of the goods trade deficit and decreases in inventory investment.
In a second report on Friday, the Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, were unchanged in April for a second straight month.
Shipments of these so-called core capital goods dipped 0.1% after rising 0.2% in March. Core capital goods shipments are used to calculate equipment spending in the government's GDP measurement.
San Francisco Federal Reserve President John Williams said that medium-term trends in inflation remain "pretty favourable," despite some recent soft U.S. consumer price data. The U.S. economy continues to grow close to 2%, the unemployment rate is very low and job growth has been good, Williams said, adding that these conditions are likely to help inflation move up to 2%.
Technical analysis: The pair hit a new short-term low on Friday at 1.1160. The next support level is 1.1104 (38.2% fibo of May rally). We think that the correction may reach the area of 1.1050/80. 
Short-term signal: The corrective move is gaining momentum. We are looking to sell EUR/USD at 1.1210 for 1.1080
Long-term outlook: Bullish
Source: GrowthAces.com - your daily forex trading strategies newsletter