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Whattup, news traders! Tomorrow at 1:30 pm GMT we’ll get a sneak peek at the first estimate of Uncle Sam’s GDP for Q2 2019.

What do you think will happen? More importantly, how can you trade the event?

Here are points you should know first:

What the heck is an “advance” GDP report?

Remember that a country’s gross domestic product (GDP) serves as a summary of how the economy fared during the reporting period. This is typically reported in percentage terms, comparing the previous year or quarter to the current one.

The U.S. releases three versions of its GDP: the advance reading, the preliminary reading, and the final reading. As the first release, the advanced GDP figure tends to spark a strong reaction from dollar pairs, especially if the actual results come way below or way above expectations.

What happened last time?

The last “advance” reading showed the economy growing by 3.2% in Q1 2019, which was a lot faster than the 2.2% growth seen in the previous quarter and the 2.3% uptick that analysts had expected.

The dollar initially rallied at the release of the better-than-expected headline figure. Unfortunately for the bulls, details also revealed that it was the inventory buildup due to scheduled tariffs on Chinese goods that had boosted growth.

Consumer spending, which accounts for about 70% of GDP, fell to its slowest rate in six years. Business investment also slowed, while prices only showed soft growth.

USD 1-Hour Forex Charts
USD 1-Hour Forex Charts

The dollar ended up erasing all its intraday gains and ended the day lower against its major counterparts. Yipes!

What are traders expecting this time?

This week analysts see the annualized GDP coming in at 1.8%, much lower than the final reading of 3.1% in Q1 2019 and would mark the lowest reading since Q1 2017.

What’s up with the low estimates?! Did the April release of Lil Nas X’s “Old Town Road” remix break the economy?

Close, but nah. For one thing, we could start to see unwinding some of the inventory buildup that we’ve been seeing in the past few quarters. Business investment is also expected to show weakness after Fed Chairman Powell himself shared that it has “slowed notably.

On the other hand, household consumption is set to continue supporting economic growth. Between falling gasoline prices, higher wages, and rising asset prices, consumer spending will likely do most of the heavy lifting in Q2.

How are the main GDP components looking?

  • Headline retail sales showed 0.4% growth in all three months of Q2 2019, while core retail sales grew by 0.0%, 0.5%, and 0.7% in April, May, and June respectively.
  • Trade deficit widened to a five-month high of $55.5B in May after showing a $51.9B shortfall in April.
  • Exports edged 2.0% higher in May after falling by 2.2% in April, while imports gained 3.3% in May after slipping by 2.2% in the previous month.
  • Durable goods orders fell by another 1.3% in May after dipping by 2.8% in April, while core durable goods slipped by 0.1% in April but improved by 0.4% in May.
  • Factory orders fell for a second straight month in May, clocking in at -0.7% after April’s 1.2% decline.
  • Building permits fell by a whopping 6.1% in June – the lowest since May 2017 – after registering 0.6% gain in April and a 0.3% increase in May.
  • Housing starts dipped by 0.9% in June after seeing a 5.7% jump in April and 0.9% uptick in May.
  • Markit’s manufacturing PMIs sharply declined during the period, clocking in at 52.4, 52.6, and 50.6 in April, May, and June.

How might the dollar react?

We know from the previous advance GDP release that traders tend to have a knee-jerk reaction to headline numbers.

We also know that FOMC members have all but confirmed a rate cut next week. Thing is, markets are actually pricing in TWO rate cuts before the year ends.

A significantly stronger than expected GDP could cause upward spikes for the dollar, as traders adjust their expectations to a less aggressive easing schedule for the Fed.

A weaker than expected release, on the other hand, could fuel “double” rate cut speculations and drag the Greenback lower across the board.

Oh, and don’t forget that details also matter! Traders are mostly expecting weaker numbers from trade and business-related factors, so eyes will be on consumer activity.

If household spending numbers show promising trends, then traders could shrug off a weak headline GDP read.

News trading ain’t your thing or high volatility makes you uncomfortable? No worries, you always have the option to sit on the sidelines and wait for things to settle down.