What is the GDP Report?
First and foremost, what exactly is a GDP report? A country’s GDP, or Gross Domestic Product, is the total output of goods and services for final use produced within a given nation’s border. It is calculated by the following formula:
GDP: C + I + G + Xn
“C” stands for consumption. It is the expenditures of the household sector. “I” stands for investment. It is the spending of the business sector. “G” means government purchases. It refers to the expenses of the public sector like education and defense. Lastly, “Xn” pertains to net exports, or the difference in value between the goods and services imported and exported.
Tomorrow, at 12:30 pm GMT, Canada’s GDP report for the month of June will be release. It’s expected to show that the country expanded 0.1%, just like what we saw the month before.
With all the bad negative data coming of Canada, it seems the actual figure could end up being much lower. For one, manufacturing sales for June dropped by 0.4%. To add to that, the wholesale sector reported that sales fell 0.1%. But most importantly, the retail sector didn’t fare very well at all. It reported that sales declined by a significant 0.4%.
Another thing to note is that the GDP has failed to meet the market’s forecast in 3 of the past 4 releases. Couple this with the number of weaker-than-expected data we got from June, there’s a considerable chance that we could see tomorrow’s GDP report come in below 0.1%.
Now here’s a look at what happened at the last two releases of the monthly Canadian GDP report:
July 31, 2012
June 29, 2012
Tendencies and Tips
Whenever the report prints worse than expected, USD/CAD, and when it comes in better than projected, USD/CAD falls. Furthermore, whenever the report failed to hit forecasts, USD/CAD would pop or drop 30 to 40 pips over the next hour, before retracing right before the end of the London session.
Based on these tendencies, here are two potential strategies I think we can utilize at tomorrow’s release:
- Play the break for a new intraday high or low. Aim for 25-40 pips and close before the end of the London session. As I mentioned above, there’s a good chance we’ll see the report fail to hit forecasts , so it might be better to take a directional bias and go for an upside break.
- Fade the move at the London close, aiming for 20-30 pips.
Whatever you decide to do, just always remember to keep those stop losses in check. If you’re not comfortable trading the news, there’s no shame in sitting on the sidelines and observing. It’s all about learning and improving as traders!