Trading the news can get very tricky but, if you do it right, you could be in for a whole lotta profits! I’ve compiled the most trade-worthy news reports due this week so that y’all will know what to watch out for.
1. Gross Domestic Product (GDP)
Does GDP stand for Get Dope Pips?
Before we get ahead of ourselves, let’s do an Economics 101 review first, shall we? The GDP, short for Gross Domestic Product, is a calculation of the total value of goods and services produced by a country. It is considered as the broadest measure of economic activity and is the favorite barometer of economic health of many.
When and who will release it?
The U.K. will be the first one to release its report tomorrow (October 26) at 4:30 pm GMT. Analysts are expecting to see that the economy grew at a slower pace during the third quarter with the forecast down to 0.4% compared to its 1.2% reading during the second quarter.
On the other hand, the U.S. economy is anticipated to show some hustle from July to September with its GDP consensus up at 2.2% on an annual basis from the 1.7%growth rate it showed in June. The Bureau of Economic Analysis is scheduled to announce the report on Friday at 12:30 pm GMT.
The Loonie will share the market spotlight with the dollar as Statistics Canada is also due to announce its GDP figures for August on Friday at 12:30 GMT. Yep, you got that right! Our Canadian buds release their GDP figures on a monthly basis. The market is anticipating to see that the Canadian economy expanded by 0.3% during the month and erase the 0.1% contraction it sported in July.
Effects on GBP, USD, and CAD?
Like most economic reports, a better-than-expected GDP report is usually bullish for a currency as it implies that the economy is healthy.
A positive figure will particularly be crucial for the pound as this could give the BOE one more reason not to pull the QE trigger. Remember that our chaps over there in Britain are still in a hot debate whether or not to provide the economy with further stimulus.
On the other hand, some of our buds here in the FX hood are saying that it may take more than a better-than-expected GDP report to keep the Fed from launching QE2 and keep the dollar from tumbling down the charts. Yikes!
As for the com-doll, a figure higher than 0.3% could put on a smile on the pessimistic BOC dudes’ faces the next time they talk about the country’s economic outlook and send the Loonie bulls on a pip-frenzy.
2. Consumer Price Index (CPI)
What’s it all about, Alfie?
According to our awesome Forexpedia, CPI measures inflation as experienced by consumers in their day-to-day expenses. How does it do that? The index monitors a representative basket of goods and services which includes food, energy, housing, clothing, transportation, medical care, entertainment and education. Basically, it measures the cost of living, hence its nickname, the cost-of-living index. You dig?
When will it be released?
We get our first taste of CPI data on Wednesday at 12:30 am GMT. Australia will be publishing its quarterly CPI which is expected to post a 0.8% uptick in prices for Q3 of 2010, up from Q2′s 0.6% increase.
Also due sometime on Wednesday is Germany’s preliminary CPI for October. Analysts are predicting a modest 0.1% rise in prices to follow up last month’s 0.1% decline.
Then at 11:30 pm GMT on Thursday, Japan rolls out its national core CPI. We’ll probably see prices continue to fall as October is forecasted to repeat September’s 1.0% year-on-year decline.
Rounding up the CPI pack is the euro zone. At 9:00 am GMT on Friday, the region will be posting its October CPI data. According to experts, inflation will probably continue to hang in the area of 1.7%, slightly down from last month’s 1.8% year-on-year increase.
Effects on AUD, EUR, and JPY?
As usual, higher-than-expected figures in these reports will likely trigger bull runs with these currencies. Why? Let me break it down for you, playa. When prices rise strongly, central banks are often forced to increase interest rates to temper inflation. Consequently, interest rate hikes cause currencies to skyrocket as investors are eager to get in on the central banks’ higher returns.
Australia’s CPI report this week is particularly interesting because many are calling for the RBA to raise rates by the end of the year. With import prices and producer prices recently rising more than anticipated, many bulls are expecting to see consumer prices follow suit. After all, stronger-than-expected inflation would only strengthen the case for a rate hike, don’t you think?
3. Interest Rate Decisions
What’s up with rate decisions?
Changes in interest rates usually play a key role in exchange rates since traders tend to go gaga for those currencies which offer higher rates of return. Because of that, monetary policy decisions by central banks typically determine where a particular currency is headed in the near term. Aside from that, traders also pay attention to the accompanying statement since these could contain hints about future interest rate changes.
When is it due?
Well, there are a couple of rate statements scheduled this week so make sure you’re in the loop. The RBNZ is set to make its rate decision on Wednesday 8:00 pm GMT while the BOJ will announce theirs on Thursday.
Effects on NZD and JPY?
Both central banks are expected to keep rates on hold for the meantime. Still, hawkish comments from the central bank officials could be bullish for the currency while a dovish tone could have a bearish effect. Keep in mind that the BOJ already slashed rates to virtually zero last October and if they maintain their downcast outlook, the JPY could take a kamikaze dive.
Meanwhile, RBNZ Governor Alan Bollard has been insisting that they won’t resume their rate-hiking ways until next year, but if he changes his mind the Kiwi could soar across the charts.
Pretty exciting week, huh? But a word of caution… While these hotshot economic catalysts can spark strong pip-tastic moves, make sure you still manage your risk properly. In other words, don’t bet the farm based on market forecasts or your own forecasts. Have an awesome week ahead!