Planning on trading the Canadian GDP report tomorrow? Make sure you go through this trading guide for some neat tips & tricks!
What the heck is the GDP Report?
The Gross Domestic Product report is basically the singular figure that represents how much output an economy produces. It measures the total amount of goods and services produced in a country. The basic formula to arrive at the GDP figure is Consumption + Investments + Government Expenditures + Net Exports (exports less imports).
Tomorrow’s report will be available during the New York session at 12:30 pm GMT, with expectations being that the economy grew by 0.1%, which would mark a nice improvement from the -0.2% decline we saw last month. Take note that unlike other GDP reports, the Canadian GDP figure is calculated on a month-on-month basis, which means that it doesn’t affect volatility as much. Nevertheless, it does provide ample trading opportunities, which I’ll discuss more on later.
Looking at recent reports from Canada though, it’s hard to say which direction GDP growth will head in.
On one hand, both the Ivey PMI and manufacturing sales failed to hit forecasts last month, which could indicating a slowing down of orders. This indicates potential weakness in the economy, which could mean we may not have seen any growth at all.
On the other hand, both the headline and core retail sales reports printed higher-than-anticipated growth, which could mean that consumers have been spending their hard-earned Christmas bonuses.
In any case, here are charts of the last two releases to help give us a clearer idea of how price action reacted in the past:
January 31, 2013: Canada’s GDP was better than expected
USD/CAD traded in a 40-pip range for most of the day until the New York session when Canada’s better-than-expected GDP data inspired a downside breakout to its new intraday lows. The pair fell by 50 pips during the New York session alone, encountered support at a minor psychological level, and then capped the day just above the day’s lows.
March 1, 2013: Canadian GDP was as expected
Unlike in January, USD/CAD had already broken out of its intraday range even before the report was released. But since the GDP growth figure came in line with what the markets had expected, the report barely caused a ripple on the Loonie. Instead, the pair encountered resistance at the 1.0350 area before a better-than-expected U.S. manufacturing PMI sparked risk appetite and dragged USD/CAD to new intraday lows.
Tips & Tricks
As you’ve noticed in the charts, we normally see an inverse correlation between USD/CAD and the actual figures of the report, at least for the release candle. What this means is that, normally, USD/CAD rallies on worse-than-expected GDP figures, while it drops when the report prints better than expected.
Take note that the initial candle normally elicits a reaction of just 20-30 pips. This doesn’t mean it isn’t playable – it just means that you’ve got to be a little more careful. You probably should take a scalpers mentality heading into this trade, and not be too ambitious.
If you’re not a big fan of trading the news, there’s no shame in sitting on the sidelines and observing first. Remember, having no position is a position!