The advanced GDP reading for the U.S. is expected to show a 1.5% contraction in the second quarter, with economists forecasting a 0.5% drop in personal consumption, and the slump in private demands may hamper the prospects for a sustainable recovery as businesses continue to scale back on employment and investments in an effort to weather the downturn in global trade.
Trading the News: U.S. Gross Domestic Product (Annualized)
What’s Expected
Time of release: 07/31/2009 12:30 GMT, 08:30 EST
Primary Pair Impact : EURUSD
Expected: -1.5%
Previous: -5.5%
Impact the U.S. GDP has had on EURUSD over the last 2 quarters
| Period | Data Released | Estimate | Actual | Pips Change (1 Hour post event ) | Pips Change (End of Day post event) |
| 1Q – 2009 | 04/29/2009 12:30 GMT | -4.7% | -6.1% | -16 | +22 |
| 4Q – 2008 | 01/30/2009 13:30 GMT | -5.5% | -3.8% | +54 | -37 |
1Q2009 U.S. Gross Domestic Product
| Economic activity in the U.S. fell at an annualized rate of 6.1% in the first quarter, led by a record drop in inventories, and conditions are likely to get worse as the nation faces its worst economic downturn in over half a century. The breakdown of the report showed business spending plunged 38% from the previous year, with firms cutting stockpiles of unsold goods at the fastest pace since recordkeeping began in 1947, and fears of a protracted recession may lead companies to scale back on production and employment throughout the year as the outlook for future growth remains bleak. Nevertheless, as the Obama Administration pledges $787B in public spending to jump-start the ailing economy, the expansion in monetary and fiscal policy should help to stem the downside risks for growth and inflation as policymakers anticipate the economy to emerge from the recession in the second half of the year. | |
4Q2008 U.S. Gross Domestic Product
| The advance GDP reading for the U.S. showed that the world’s largest economy contracted at an annual pace of 3.8% in the fourth quarter to mark the biggest drop since 1982, and conditions are likely to get worse as the region faces its worst economic downturn in over a quarter century. A deeper look at the report showed personal consumption, which is one of the biggest drivers of growth, slipped 3.8% during the three-months to December, while business investments plunged 19.1% from the third quarter to post the biggest drop since 1975, and the data foreshadows a deepening recession in the U.S. as private-sector spending falters. As a result, the Federal Reserve is widely expected to hold the overnight lending rate at the record-low of 0.25% for some time, and announced that the central bank will utilize policy tools beyond the interest rate in an effort to stem the downside risks for growth and inflation. |
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What To Look For Before The Release
Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:
| Bullish Scenario:
If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on EURUSD ahead of the data release. | Bearish Scenario: |
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How To Trade This Event Risk
The advanced GDP reading for the U.S. is expected to show a 1.5% contraction in the second quarter, with economists forecasting a 0.5% drop in personal consumption, and the slump in private demands may hamper the prospects for a sustainable recovery as businesses continue to scale back on employment and investments in an effort to weather the downturn in global trade. A report by the Commerce Department showed orders for durable goods plunged 2.5% in June, while the personal savings rate jumped to a 15-year high of 6.9% in May, and the downturn in domestic demands may continue to stoke fears of a protracted recession as private-sector consumption accounts for more than two-thirds of the economy. Moreover, the International Council of Shopping Center said chain-store sales slumped for the eleventh month in June as households faced a weakening labor market, and the bigger-than-expected drop in consumer confidence could translate into a slower recovery as banks continue to tighten lending standards. Meanwhile, the Fed’s Beige Book said most parts of the nation saw ‘signs of stabilization’ during June and July, along with a rise in ‘selective hiring’ however, policymakers noted retail spending remained ‘sluggish,’ with banks continuing to tighten credit for households and businesses across the seven districts. In addition, the central bank went onto say that service-based activity excluding financials were ‘largely negative,’ while the ‘labor markets remain slack,’ which ‘has virtually eliminated upward wage pressures,’ and speculation for a slower recovery could weigh on the exchange rate as growth prospects remain subdued. However, as the FOMC expects the growth rate to contract at a slower pace throughout the remainder
