Trading the Q1 2013 Preliminary GDP Report

With the big boys at the Fed paying close attention to the state of the U.S. economy, I think it would be prudent for us to keep an eye on the upcoming preliminary GDP report, which is scheduled for release tomorrow at 12:30 GMT by the U.S. Bureau of Economic Analysis.

Take note that this is the SECOND version of the report, which means that price action might be limited should the data come in as expected. If we do see a revision to the initial figure though, watch out! We may just see a ton of volatility during the New York trading session!

As it is, no changes are expected from the initial release, with growth for the first quarter expected to remain at 2.5%. During the advance GDP report (the first release) this figure was actually way below the anticipated figure of 3.1%.

In any case, let me show you the last two releases when we did see revisions during the preliminary report.

November 29, 2012 (2.7% vs. 2.8%)

EUR/USD Chart

February 28, 2013 (0.1% vs. 0.5%)

EUR/USD Chart

Based on the past two releases, price action had a positive correlation with the result. In both instances, the pair fell following downward revisions. This suggests that the pair could sell-off on a worse-than-expected figure, while the pair could rally in the event of a better-than-expected result.

However, with the Federal Reserve (Fed) relying heavily on economic data to determine monetary policy, this might not be the case for the upcoming meeting. The opposite might actually happen. After all, good GDP figures would indicate improvement in the U.S. economy, giving the Fed more reason to withdraw quantitative easing measures.

This would benefit the greenback. On the flip side, a downward revision would hint of more trouble for the U.S. economy, which only gives the Fed more reason to stick with its current asset purchase program.

Tips & Tricks

If you’re planning to trade the report, your best bet might be to stick to scalping.

Wait for the release of the report and see what printed figure is. If it’s better than expected, buy the greenback but if it’s worse than expected, sell. However, if we don’t see any revisions from the advance report, it might be best to sit on the sidelines, as chances are we won’t see much volatility.

As for setting take profit targets, I would suggest aiming for the nearest support or resistance level but not aiming for more than 50 pips. You might be pushing your luck if you aim for too big a pip target. For your stops, go with tight stops of about 20 to 30 pips. This should suffice and give you a pretty decent reward-to-risk ratio.

Of course, as mentioned in our risk disclosure agreement, nothing is set in stone in the forex market. This means that ANYTHING can happen, at any moment! As traders, it’s our responsibility to find our edge by playing high-probability setups, sticking to the trading plan, and managing risk.