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Trading the News: U.K. Gross Domestic Product (based on dailyfx article)
Trading the News: U.K. Gross Domestic Product (GDP)
The U.K.’s 3Q Gross Domestic Product (GDP) report may spur a lower-low in GBP/USD should the advance reading drag on interest rate expectations.
What’s Expected:
Why Is This Event Important:
A marked slowdown in the U.K. economy may continue to spur a 7-2 split within the Monetary Policy Committee (MPC) as Governor Mark Carney remains in no rush to normalize monetary policy, and the GBP/USD may face a further decline over the remainder of the year as the Fed prepares to exit it easing cycle.
Lower business outputs paired with the slowdown in private-sector consumption may dampen bets of seeing a stronger recovery in the U.K., and a dismal 3Q GDP print may trigger fresh monthly lows in the GBP/USD especially as the BoE retains a rather neutral tone for monetary policy.
Nevertheless, the expansion in building activity along with the ongoing improvement in the labor market may pave the way for a better-than-expected growth report, and a positive development may spur a larger dissent within the BoE as the fundamental outlook for the U.K. improves.
How To Trade This Event Risk
Bearish GBP Trade: U.K. GDP Slows to 0.7% or Lower
- Need red, five-minute candle following the GDP print to consider a short British Pound trade
- If market reaction favors bearish sterling trade, short GBP/USD with two separate position
- Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward
- Move stop to entry on remaining position once initial target is hit, set reasonable limit
Bullish GBP Trade: 3Q Growth Rate Exceeds Market Forecast- Need green, five-minute candle to favor a long GBP/USD trade
- Implement same setup as the bearish British Pound trade, just in reverse
Potential Price Targets For The ReleaseGBP/USD Daily Chart
- Despite the string of lower-highs, need a break of the bullish RSI momentum to favor fresh lows.
- Interim Resistance: 1.6280 (38.2% retracement) to 1.6300 (50.0% retracement)
- Interim Support: 1.5890 (61.8% retracement) to 1.5900 (50.0% expansion)
Impact that the U.K. GDP report has had on GBP during the last release(1 Hour post event )
(End of Day post event)
As expected, the U.K. economy expanded another 0.8% in the second quarter of 2014 following the 0.8% rate of growth in the first three months of the year. The lackluster recovery in the U.K. may continue to drag on interest rate expectations as the Bank of England (BoE) remains in no rush to normalize monetary policy, and the British Pound may face additional headwinds over the rest of the year should the central bank scale back its willingness to raise the benchmark interest rate off of the record-low. The initial reaction was largely mixed as the GBP/USD quickly fell back from the 1.6990 region, and the pair continued to consolidate throughout the North American trade as it ended the day at 1.6974.
German Ifo Business Climate, US Core Durable Goods Orders, CB Consumer Confidence, FOMC Statement and rate decision, US and Canadian GDP data, US Unemployment Claims, Fed Chair Yellen’s speech. These are a few of the larger events on our calendar for this week. Follow along as we explore the Forex market movers.
Last week, US data continued to surprise with a better than expected headline CPI rising 1.7% on a yearly base and 0.1% monthly in September while core CPI remained unchanged. Furthermore US unemployment claims increased to 283K but remained below 300,000 for a sixth straight week and he four-week moving average declined to its lowest level since May 2000. Will the strong US data continue despite the global slowdown trend?
Forum on trading, automated trading systems and testing trading strategies
Something Interesting in Financial Video October 2014
newdigital, 2014.10.25 16:56
Trading Video: EURUSD Traders Buckle Up for FOMC, ECB Stress Tests, Risk Trends
- Next week's economic docket will create an extremely treacherous trading environment
- Top concern is Wednesday's FOMC rate decision which can shift the Dollar and 'risk' outlook
- However, there is plenty more scheduled and a particularly perilous week for the Euro
Was this past week's rise in capital markets and relief from volatility a false dawn? The recovery from a bad stumble through the first half of October drew limited participation and occurred during the lull of a changing landscape. Looking ahead, the bearings for sentiment, activity levels, positioning and established trends will be put to the test. In a docket that is overflowing with high-level releases, the FOMC rate decision will be the focal point. Not only will this tap a heavily disputed policy forecast for the Dollar's sake, but it could also carry the burden of defining the next 'risk' move for the financial system. Other key releases like the RBNZ and BoJ rate decisions should be accounted for, but the currency with the most persistent pressure will be the Euro - from week's beginning to end. We look at the risk and potential of the week ahead in this weekend Trading Video.The EUR/USD pair initially tried to rally during the course of the week, but the 1.28 level offered enough resistance yet again to push the market back down and form a negative candle. That being the case, the market should continue to go much lower, perhaps testing the 1.25 level. That area, if we break through it will have a significant effect on this marketplace as it should push the Euro much lower. We have no interest in buying until we get above the 1.30 handle, as it would show a significant uptick in positive momentum.
The euro pushed higher against the dollar on Friday after data showed that German consumer confidence improved, while upbeat U.K. third quarter growth data underpinned investor demand for the pound.
The euro found support after the forward looking Gfk index of German consumer climate ticked up to 8.5 for November from a revised 8.4 in October. The index had fallen sharply in the preceding two months as concerns over geopolitical risks and the ensuing economic slowdown weighed.
EUR/USD was up 0.17% to 1.2668 in late trade, holding below session highs of 1.2695.
Concerns over upcoming European bank stress test results, due for release on Sunday, along with a confirmed Ebola diagnosis in New York City bolstered safe haven demand for the yen and saw the dollar weaken slightly.
USD/JPY was down 0.12% to 108.14 late Friday, after falling as low as 107.77 earlier in the session. At the same time, USD/CHF was down 0.22% to 0.9518.
In the U.K., data on Friday showed that gross domestic product expanded by 0.7% in the third quarter, slowing from 0.9% in the three months to June, but in line with forecasts. Annual GDP was up 3%, also in line with forecasts.
The data underpinned expectations that the continuing economic recovery could prompt the Bank of England to hike interest rates in the second half of next year.
GBP/USD was at 1.6083 in late trade, 0.33% higher for the day.
The US dollar index, which tracks the performance of the greenback against a basket of six major currencies, was down 0.19% to 85.79 late Friday. The index still ended the week higher, stabilizing following a steep selloff in the previous week.
Fears that a slowdown in global economic growth could act as a drag on the U.S. economic recovery have prompted investors to push back expectations for an increase in interest rates by the Federal Reserve to the second half of 2015.
In the week ahead investors will be looking ahead to the outcome of Wednesday’s Federal Reserve meeting amid expectations that it will wind up its asset purchase program.
Investors will be scrutinizing the Fed statement for further indications on how soon interest rates could start to rise.
Friday’s report on euro zone consumer inflation will also be in focus, amid growing expectations that the European Central Bank will have to take additional easing steps to boost the flagging euro area economy.
Monday, October 27
- The Ifo Institute is to release its report on German
business climate. The euro zone is to release data on M3 money supply
and private loans.
- The U.K. is to release private sector data on retail sales.
- The U.S. is to publish an industry report on pending home sales.
Tuesday, October 28- Japan is to release data on retail sales, the
government measure of consumer spending, which accounts for the majority
of overall economic activity.
- The U.S. is to release data on durable goods orders and a report by the Conference Board on consumer confidence.
Wednesday, October 29- Japan is to publish preliminary data on industrial production.
- New Zealand is to release private sector data on business confidence.
- The U.K. is to report on net lending to individuals.
- Canada is to produce data on raw material price inflation.
- The Federal Reserve is to announce its federal funds rate and publish its rate statement.
- Later Wednesday, the Reserve Bank of New Zealand is to announce its official cash rate and publish its rate statement.
Thursday, October 30- Australia is to release a report on import prices.
- The U.K. is to publish private sector data on house price inflation.
- In
the euro zone, Germany is to produce preliminary data on the consumer
price index, which accounts for the majority of overall inflation. The
country is also to release a report on the change in the number of
people unemployed.
- Elsewhere in the euro area, Spain is to release preliminary data on consumer inflation and third quarter GDP.
- Switzerland is to publish its KOF economic barometer.
- The
U.S. is to publish revised data on third quarter GDP, as well as the
weekly report on initial jobless claims. Later in the day, Fed Chair
Janet Yellen is to speak at an event in Washington; her comments will be
closely watched.
Friday, October 31The euro edged higher against the dollar on Friday as an improvement in German consumer confidence buoyed up the single currency.
EUR/USD was up 0.17% to 1.2668 in late trade, after rising to session highs of 1.2695. For the week, the pair was down 0.62%.
The euro found support after the forward looking Gfk index of German consumer climate ticked up to 8.5 for November from a revised 8.4 in October.
The index had fallen sharply in the preceding two months as concerns over geopolitical risks and the ensuing economic slowdown weighed.
Concerns over European bank stress test results along with a confirmed Ebola diagnosis in New York City bolstered safe haven demand for the yen and saw the dollar weaken slightly.
The dollar slid against the yen after a doctor in New York tested positive for the Ebola virus after returning from Guinea. The news fuelled concerns that a widespread outbreak of the virus could derail global economic growth.
The dollar later pulled away from session lows against the euro and the yen after data showed that U.S. new home sales rose 0.2% from a month earlier to hit a six year high of 467,000 in September.
The US dollar index, which tracks the performance of the greenback against a basket of six major currencies, was down 0.19% to 85.79 late Friday. The index still ended the week higher, stabilizing following a steep selloff in the previous week.
Fears that a slowdown in global economic growth could act as a drag on the U.S. economic recovery have prompted investors to push back expectations for an increase in interest rates by the Federal Reserve to the second half of 2015.
In contrast, the European Central Bank has cut interest rates to record lows in recent months and announced monetary stimulus measures in a bid to spur growth in the euro area.
The single currency weakened across the board earlier in the week after Reuters reported that the ECB is examining plans to widen its asset purchasing stimulus program to include corporate debt.
In the week ahead investors will be looking ahead to the outcome of Wednesday’s Federal Reserve meeting amid expectations that it will wind up its asset purchase program. Investors will be scrutinizing the Fed statement for further indications on how soon interest rates could start to rise.
Friday’s report on euro zone consumer inflation will also be in focus, amid growing expectations that the ECB will have to take additional easing steps to boost the flagging euro area economy.
Monday, October 27
- The Ifo Institute is to release its report on German
business climate. The euro zone is to release data on M3 money supply
and private loans.
- The U.S. is to publish an industry report on pending home sales.
Tuesday, October 28- The U.S. is to release data on durable goods orders and a report by the Conference Board on consumer confidence.
Wednesday, October 29- The Federal Reserve is to announce its federal funds rate and publish its rate statement.
Thursday, October 30- In the euro zone, Germany is to produce preliminary
data on the consumer price index, which accounts for the majority of
overall inflation. The country is also to release a report on the change
in the number of people unemployed.
- Elsewhere in the euro area, Spain is to release preliminary data on consumer inflation and third quarter GDP.
- The
U.S. is to publish revised data on third quarter GDP, as well as the
weekly report on initial jobless claims. Later in the day, Fed Chair
Janet Yellen is to speak at an event in Washington; her comments will be
closely watched.
Friday, October 31EUR/USD Politics and Growth :
"Full-on quantitative easing of the sort the Fed is now winding up remains politically difficult to countenance.
On Monday the ECB will announce how many covered bonds, which are backed by high-quality assets so holders may be reluctant to give them up, it bought in its first week in the market."
Weekend Edition with John O'Donnell
Great bullish move to the upside for all 4 major indices this week, yet fear still has not abated. John and Merlin take a look at the market and offer insights as to what’s driving it, and how we should approach it. They also talk about the trading industry as a profession and the best way to get involved with the financial markets. Finally, John tips the scales for his weekly weigh in!
if actual > forecast (or actual data) = good for currency (for USD in our case)
[USD - Pending Home Sales] = Change in the number of homes under contract to be sold but still awaiting the closing transaction, excluding new construction.
==========
U.S. Pending Home Sales Show Modest Rebound In September
After reporting a notable pullback in U.S. pending home sales in the previous month, the National Association of Realtors released a report on Monday showing a modest rebound in pending sales in the month of September.
NAR said its pending home sales index inched up by 0.3 percent to 105.0 in September after falling by 1.0 percent to 104.7 in August. Economists had been expecting pending home sales to increase by about 0.5 percent.
A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.
With the modest monthly increase, the pending home sales index is up by 1.0 percent compared to September of 2013, reflecting the first year-over-year increase in eleven months.
Lawrence Yun, NAR chief economist, said moderating price growth and sustained inventory levels are keeping conditions favorable for buyers.
"Housing supply for existing homes was up in September 6 percent from a year ago, which is preventing prices from rising at the accelerated clip seen earlier this year," Yun said. "Additionally, the current spectacularly low mortgage rates should help more buyers reach the market."
Strategy Video: Volatility Underpricing FOMC Risk Suggests Explosive Markets Ahead
Heading into major event risk, we typically see expectations for volatility and the cost of hedges rise. Yet, as we close in on Wednesday's FOMC decision; we find the anticipation for market reaction is surprisingly stoic. Not only are activity levels generally higher now than they have been in past months; but the forecasts for the central bank's bearings have grown increasingly extreme towards the dovish view - at the same time the market grows increasingly aware of its dependency on temporary global stimulus. This disparity in impending event and the market's position reflects a similar type of mispricing to traditional scenario analysis. Yet, here, the result is greater volatility.