Forex Signal (Fri, July 30 2010, 8:30am NY Time EST) - US Adv. GDP q/q

[Henry Liu]

We are also getting the Canadian monthly GDP release at the same time of this release, therefore I’d recommend to either trade the U.S. release or concentrate on the Canadian release, do not try to trade both of them together... Here’s the forecast for U.S. Adv. GDP:

8:30am (NY Time) US ADV GDP q/q Forecast 2.5% Previous 2.7%
ACTION: USD/JPY BUY 2.8% SELL 2.2%

The Trade Plan
Our main focus tomorrow will be on the first of three quarterly (Q2) release of U.S. GDP number (ADV). We are looking for a minimum deviation of 0.3% on the forecasted figure of 2.5%. Therefore if we get a 2.8% on the advanced 2nd quarter GDP, it would be US Dollar positive. We will BUY USD/JPY. However, if we get a 2.2% release or worse, then we would be SELLING USD/JPY.

We'll be looking to trade this release based on my Retracement Trading Method; since this is a high impact release, strong market volatility is expected immediately after the release.

For more information on my trading methods:
Henry's News Trading Methods

The Market
With Adv. GDP being the first GDP release of the three, it is usually the most volatile GDP release with the highest potential of a surprise number. Because the impact of GDP on future monetary policy, this event has the potential of changing both the long-term and short-term trend of USD. It’s definitely an event worth trading.

We should wait until both GDP data (U.S. and Canada) have been released, including their possible revisions, then trade only after we see a significant spike and actual releases hitting or surpassing our deviation. If our deviation is not hit, then we’ll stay out of the market.

With EUR/USD hitting the 1.31000 today, market is not likely to push this pair to a breakout until after this release, therefore I expect to see a tight ranged Asian and European market today.

Additional Thoughts
US is the largest economy in the world, it's GDP is made up 2/3 of Retail Sales, and a positive GDP shows resilience in the U.S. economy and a strong message that economic recovery is still live and well in the U.S. Therefore, this release will be considered as risk event by traders. Here are the scenarios:

1. Better GDP = Risk Appetite: JPY should lose strength immediately, making all JPY pairs move up (GBP/JPY, EUR/JPY, USD/JPY, AUD/JPY), and expect to see USD remaining strong against other majors.

2. Worse GDP = Risk Aversion: JPY should gain strength immediately, dragging down the USD/JPY pair. USD should also be weak across the board. If the GDP release drops down significantly, we could see flight for safety movement in the market as USD could actually gain strength on the back of demands for US treasuries. This would be an extreme case if GDP misses expectation by a huge deviation such as 1% or more.

Pre-news Consideration
Since the last revision on Q1 Final GDP was 2.7% and forecast for this Q2 Adv. GDP is at 2.5%, we are not seeing a huge contrast in numbers, pre-market sentiment should have already priced in this market sentiment.

However, judging from last 3 months of Retail Sales release, which makes up about 66% of the GDP calculation, this release is likely to be on the low side, evidenced by today's equity market which closed lower in anticipation of this release...

I'd probably stay out of the pre-news market as I believe recent market activities has already priced in this release.

DEFINITION:
“GDP, which is defined (from wikipedia) as “the market value of all final goods and services produced within a country in a given period of time. It is also considered the sum of value added at every stage of production of all final goods and services produced within a country in a given period of time.” GDP number has a direct effect on the Interest rate of the currency, it is one of the news indicators that affects FOMC’s decision directly.”

Historical data and charts on US GDP q/q.

Thanks,

 

[Ghazali]

AUD/USD under pressure?

Hi Henry,

Sorry to ask this in this thread, I made a nice profit on your USD/CAD short call prior to interest rate statement last week. So regarding the AUD/USD short call, I entered at 0.8968 and stopped out at 0.9032 yesterday. So current price as im writing is 0.8985, So shall I go short here again as per your suggestion or wait until the release of US GDP.

In my opinion the price movement seems too reluctant to move lower as US Dollar being slaughtered by majors currently. So in case US GDP came worse than expected, it may violate the short on AUD/USD? Im not sure, this is my thought. So what you think about this scenario?

Thanks in Advance.

Regards,

Ghazali

 

[Henry Liu]

Hi Henry,

Sorry to ask this in this thread, I made a nice profit on your USD/CAD short call prior to interest rate statement last week. So regarding the AUD/USD short call, I entered at 0.8968 and stopped out at 0.9032 yesterday. So current price as im writing is 0.8985, So shall I go short here again as per your suggestion or wait until the release of US GDP.

In my opinion the price movement seems too reluctant to move lower as US Dollar being slaughtered by majors currently. So in case US GDP came worse than expected, it may violate the short on AUD/USD? Im not sure, this is my thought. So what you think about this scenario?

Thanks in Advance.

Regards,

Ghazali

I'd enter if AUD goes above the 0.9010 again, however that's just me. I look at the long term view of the market so if I am going for 400 pips of gain, I could use bigger SL. But we could see a shift in sentiment for USD even if the GDP is worse; so the AUD trade is not dead yet.

 

[digital_soul]

Hi Henry,

Sorry to ask this in this thread, I made a nice profit on your USD/CAD short call prior to interest rate statement last week. So regarding the AUD/USD short call, I entered at 0.8968 and stopped out at 0.9032 yesterday. So current price as im writing is 0.8985, So shall I go short here again as per your suggestion or wait until the release of US GDP.

In my opinion the price movement seems too reluctant to move lower as US Dollar being slaughtered by majors currently. So in case US GDP came worse than expected, it may violate the short on AUD/USD? Im not sure, this is my thought. So what you think about this scenario?

Thanks in Advance.

Regards,

Ghazali

I agree. Jumping into the AUD/USD short call from Henry could be a disaster if the US GDP comes out weaker then expected. If anything the JPY is gaining so much strength (even right now!) so I would put my bets on a JPY pair before the release of the US GDP

 

[pinguino]

Hello Henry, really good post, in your experience do you think is worth to spend time doing some analysis trying to forecast the numbers to enter prior to news release or is just to complicate to figure out all the economic inputs, so it is better to act after the news release?,

 

[Ghazali]

Aussie VS Greenback

I agree. Jumping into the AUD/USD short call from Henry could be a disaster if the US GDP comes out weaker then expected. If anything the JPY is gaining so much strength (even right now!) so I would put my bets on a JPY pair before the release of the US GDP

Hi Digital_soul,

Jumping into the AUD/USD short call from Henry could be a disaster if the US GDP comes out weaker then expected BUT I think that effect could remain for a while as usual as other hot news impact. Henry is suggesting a longer-Mid term call with huge SL and he's analyzing that there might be some probability in sentiment change in USD. Thus can be true since past few weeks, USD being slaughtered by majors and this could lead to USD revenge.

But anyhow go short above 0.9010 would be better idea and go short after the release would be much more better idea. For Example, let say Audi fluting around 0.90xx and news maybe spike up to 0.9090 or more and this would be better bet to go short since we got better price.

Thus my little opinion. Thanks Henry for your kind reply.

 

[purplerowt]

With EUR/USD hitting the 1.31000 today, market is not likely to push this pair to a breakout until after this release, therefore I expect to see a tight ranged Asian and European market today.

Thanks for this great advice, Henry! I considered what you said and I also realizes that since today is the last trading day of the month, traders are wanting to take their profits. So I shorted at 1.3096 and I've made over 100 pips so far! I can't wait until the US GDP news release so I can try your retracement method.

God Bless you, Henry, and thanks again!!!

 

[Cancer0s]

Henry Liu...

I've got a question about Retracement Trading Method. Because you do not define the exact place of when and how should retracement must look like, to set up position. So how we should tell apart small retracement from bigger one... Could you explain more accurately this issue?

EDIT: You're looking for M1, M5 TF? Or it's M1 spike we are looking for a small retracement or we are looking on M5 and we are looking for a bigger?

 

[dezza33]

thanks Henry,
I placed a trade on the USD/JPY (short) an hour earlier with a tight stop, well I picked up 50 pips, so I was happy. Also, how do I get the newsprofiteer working again ??, I am getting the same values each day and it doesn't move, do I reinstall it ??

 

[randycbrown]

US 2nd qtr GDP Went Well

Dear Mr. Liu,

Well, I read your posting and instructions...several times. I looked at a dozen or so previous trading charts of quarterly GDP reports. I noticed that these market responses were quite varied. Sometimes the market took off like a rocket...sometimes it took off one direction and then a few minutes later would reverse and go another direction. Sometimes there were outrageous spikes.

So I was mentally prepared to take your advice and wait for a retracement before entering my trade.

Well, at 8:30 this thing took off like a rocket (a downward rocket) and I was excited! I only have one computer screen and trying to go from news back to the charts wasn't easy and quite frankly, at least for today, it didn't seem necessary. The market was heading unequivocably south, no discussion. It would have been nice to know the numbers but it was very clear by the charts that the numbers were no great shakes...the USD was losing ground against the JPY.

Ah,ha, just as you said, there was a considerable retracement... all the way back to the beginning of the market movement...but I was too eager to "get into the trade" and I entered about 10 pips too soon; had I waited just a few more seconds I could have added 10 pips to my profit by entering my trade at the 8:30 starting point.

Then the market headed south again and by 8:40 I had about 28 pips (at $144 per pip that's over $4000...my practice account) and that is where I closed the trade with a smile.

Let's say we graded our trade according to the following scale:

40-45 pips A
30-39 pips B
20-29 pips C
1-19 pips D

This trade I got a C+ and I'm looking for a long run on the Aussie dollar next week.
Thanks Mr. Liu