May 24, 2012

Revised GDP q/q, or better known as the 2nd quarterly GDP release, is going to be the focus for today. This is for the first quarter of 2012 (Q1 2012) Here is the forecast:
4:30am (NY Time) UK Revised GDP q/q Forecast -0.2% Previous -0.2%
DEVIATION: 0.2% (BUY GBP 0.0% / SELL GBP -0.4%)

Definition
Revised GDP q/q from UK, is defined as “the market value of all final goods and services produced within a country in a given period of time. It is also considered the sum of value added at every stage of production of all final goods and services produced within a country in a given period of time.” GDP is the basically direct measurement of the economy, and a stronger GDP means that the central bank will more likely raise interest rate as better economy usually brings higher inflationary pressure…

The Trade Plan
Since this is the second release of the 1st quarterly GDP for 2012, we´re not likely to get a huge surprise as most 2nd releases are pretty much inline. However, judging from the expected release of -0.2% and previous release of -0.2% (Prelim GDP), we may not get a surprise release after all.
Our surprise factor is around 0.2% as we´ll look to possibly SELL GBP at -0.4% or worse, and BUY GBP at 0.0% or better, as I believe the only reason that would justify a short-term LONG on Sterling is definitely a 0.0% to a positive figure as this would signify that UK is not in a “technical recession”
Historically, if there is a 80% of chance that our S. Factor hits, the market will move up to 50~70 pips within the hour as GDP is a very high impact report.

EURUSD
Market still has some room to the downside, but retracement could come from 1.2480-1.2530 area.

Primary currency pair: GBP/USD
Forecast: -0.2
Previous: -0.2
LT1 (Lower Trigger 1): -0.2 [SELL]
UT1 (Upper Trigger 1): +0.2 [BUY]

If UK GDP q/q comes out at -0.4 or more negative ( -0.2 trigger), GBP/USD should go down by about 20 pips. If it comes out at 0.0 or higher ( +0.2 trigger), GBP/USD should go up by about 20 pips.

Based on 29 estimates, both median and average estimates are -0.2%. The highest estimate is -0.1% (only three votes) and the lowest estimate is -0.3% (nine votes). That means that 17 out of 29 economists expect it to come out at -0.2. One standard deviation is 0.1%.

I think +/- 0.2 deviation should be enough to cause a spike. The problem is it rarely deviates for the 2nd reading so unfortunately it might be another no trade.

However, keep in mind we will have bunch of other reports that may add some noise to the price action.

Since it's the 2nd release, don't expect big spikes here.

GBPUSD

Supports : Weekly 1,561 ; Daily 1,565 ; Hourly 1,5675

Resistances : Weekly 1,5795 ; Daily 1,5735 ; Hourly 1,5695

BOOKS

Forex Price Action Scalping: an in-depth look into the field of professional scalping - Bob Volman - EUR 27,19
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