Forex Signal (Fri October 29, 2010 8:30am EDT NY Time) US Adv. GDP q/q

Henry Liu

Former FPA Special Consultant
We are also getting the Canadian monthly GDP release at the same time of this release, however I’d recommend to trade the U.S. release only as the market will be paying much more attention to it, especially when the Feds are also watching it. Here’s the forecast for U.S. Adv. GDP:

8:30am (NY Time) US ADV GDP q/q Forecast 2.0% Previous 1.7%

The Trade Plan
Our main focus tomorrow will be on the first of three quarterly (Q3) release of U.S. GDP number (ADV). We are looking for a minimum deviation of 0.3% on the forecasted figure of 2.0%. Therefore if we get a 2.3% on the advanced 3rd quarter GDP, it would be US Dollar positive. We will SELL EURUSD. However, if we get a 1.7% release or worse, then we would be BUYING GBPUSD.

The reason behind choosing these pairs is that GBP is benefitting from its own GDP q/q release, whereas EUR is on the verge of a major retracement if USD were to strengthen.

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 releases with the highest potential for a surprise number. Because of the high impact GDP has on future monetary policy, and the fact that this will be last important release before Fed's meeting next week, especially with the uncertainty surrounding the amount of asset purchases Bernanke et al will be announcing, rest assure that all eyes will be looking at this one.

The medium forecast out of 67 economists surveyed by Bloomberg agree that the annual GDP rate ending in September 2010 will be at 2.0%. Although it is not enough to provide jobs to close to 15 million unemployed Americans, but there is very little doubt that the economy is recovery, and there would not be a double-dip recession.

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.

However, with the recent market sentiment towards JPY, I'd not be looking to trade any Yen crosses... But in the event of a significantly better release, I'd assume to see USDJPY gaining significantly.

The other important factor is Consumer Spending (Personal Consumption), which accounts for about 70% of GDP. This number is expected to be at 2.4%... Although this is not a tradable number on its own, if we get a very strong Consumer Spending along with the GDP release, expect to see some buying in the USD as this signals a strong 4th quarter ahead as retailers brace for the holidays.

Pre-news Consideration
Since the last revision on Q2 Final GDP was 1.7% and forecast for this Q3 Adv. GDP is at 2.0%, 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 70% of the GDP calculation, this release is likely to be inline with expectation...

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

“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.


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