US Prelim GDP q/q Forex Trading Plan (08/27/10)

Here’s the forecast for U.S. Prelim. GDP:

8:30am (NY Time) US Prelim GDP q/q Forecast 1.5% Previous 2.4%
ACTION: USD/JPY BUY 1.8% SELL 1.2%

The Trade Plan
Our main focus tomorrow will be on the second of three quarterly (Q2) release of U.S. GDP number (Prelim). We are looking for a minimum deviation of 0.3% on the forecasted figure of 1.5%. Therefore if we get a 1.8% on the Prelim 2nd quarterly GDP, it would be US Dollar positive. We will BUY USD/JPY. However, if we get a 1.2% 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.

The Market
With Prelim GDP being the second GDP release of the three, it is usually ignored by the market. But with the possible large revision due to recent negative data, market will be paying attention to this release… There are talks of an even worse release than the already deeply discounted forecast of 1.5%.

However, judging the risk averse market conditions of the past few days, I believe current forecast is priced in and if we get an as expected release, or slightly worse release, there should be very limited market volatility as USDJPY has been trading around support.

But if we were to get a stronger release, we should expect to see USD/JPY recover above the 87 to 88 level by the end of the day…

Additional Thoughts
US is the largest economy in the world and it’s GDP is a reflection of global economy. Therefore, this release will be considered as global 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 Considerations
I’d probably stay out of the pre-news market as I believe recent market activities has already priced in this release. As a matter of fact, I believe we may actually see some reversal in risk aversion sentiment after this release as speculators will be doing the typical “buy on rumor, sell on news”.

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.”

Related posts:

1. Forex News Trading UK Prelim GDP 10/26/10
2. Forex News Trading UK Prelim GDP q/q 01/25/11
3. Forex News Trading UK Prelim GDP q/q 07/26/11
4. Forex News Trading UK Prelim GDP q/q 04/27/11
5. UK 2nd Quarter Prelim GDP Analysis & Video 07/23/10
6. Forex Trading Plan For UK Revised GDP q/q 08/27/10
7. Trading Plan For AU GDP q/q 08/31/10
8. US ISM Manufacturing PMI Forex Trading Plan & Video 08/02/10
9. US Core Retail Sales m/m 11/16/09
10. US Core Retail Sales m/m 10/14/09

Tagged as: economic outlook, european currencies, FOMC, Forex, Forex News, Fundamental News, GDP, Gross Domestic Product, JPY, personal consumption, pips, risk aversion, safe haven, Sterling, US, USA, USD