Trading Guide: Q2 Advance GDP Report

What is the Advance GDP Report?

For those of you who weren’t paying attention in our Fundamentals lessons, you should know that the there are actually three releases for GDP data in the U.S. The first is the Advanced version. It tends to have the largest impact on market, primarily because it gives market playas the first glimpse on how Uncle Sam performed in the previous quarter.

Moreover, with all the hullabaloo surrounding the Fed‘s plans, I believe that this particular release will be heavily watched, as it could provide the ammunition needed by either the hawks or doves to push for their respective cases.

Now, let’s see what happened on EUR/USD during the last two releases of the Advance GDP report.

The Past

Legend:

  • Pink Line – Day Open
  • Purple Line – Week Open
  • Green Lines – Previous Day’s High / Low
  • Blue Lines – Previous Week’s High / Low

April 25, 2013 – (Actual: 2.5%; Expected: 3.1%)

EUR/USD Chart

During April’s release, we see that EUR/USD rallied slightly when the report printed worse than expected. Still, it wasn’t enough to send EUR/USD soaring to new highs.

January 30, 2013 – (Actual: -0.1%; Expected: 1.1%)

EUR/USD Chart

In the January release, you can clearly see that price had already been drifting higher even before the released. When the actual report was published, price didn’t move at all, and remained in consolidation for the next 2 hours. It was only after the close of the European session that price moved upward again.

For the Advance GDP report that will be released tomorrow, take note that it will cover data that were released during the second quarter. This means the recent data that you’ve been seeing–those released in July–won’t have a bearing on it.

The forecast is that the U.S. experienced a 1.1% economic expansion in Q2 2013. It is somewhat disappointing as it is even lower than the downwardly revised 1.8% we saw in Q1.

Considering that lately we’ve been seeing a fundamental price action response to U.S. data (bad data leads to a weaker dollar and vice versa), I believe that there are three main scenarios.

If the GDP comes in as expected, we could see a slightly weaker dollar, as the figure is lower than the growth we saw in Q1. Now, if the GDP manages to beat expectations but is lower than the previous quarter, we’ll probably see a decent rally in the dollar. Last but not the least, if the GDP turns out to be much higher than Q1, it’s reasonable to expect a very strong rally in the dollar.

Of course, as mentioned in our risk disclosure, nothing is set in stone in the forex market as anything can happen! As traders, the most we can do is find our edge by playing the high-probability trades, sticking to the trading plan, and managing risk properly.