Thursday, August 25, 2011

UK Revised GDP Data Release - August 26, 2011

Revised GDP q/q, or better known as the 2nd quarterly GDP release, is going to be the focus for today. Here is the forecast:
 
4:30am (NY Time) UK Revised GDP q/q Forecast 0.2% Previous 0.2%

ACTION: GBP/USD BUY 0.5% SELL -0.1%

The Trade Plan
 
Since this is the second release of the 2nd quarterly GDP, 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.

However, we´ll still be looking to trade the release using our after news retracement method. Our surprise factor is 0.3% as we´ll look to possibly SELL GBP/USD at -0.1% or worse, and BUY GBP/USD at 0.5% or better, as I believe the only reason that would justify a short-term LONG on Sterling is definitely a above 0.5% positive figure.

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.

The Market
 
The revised UK GDP report will most likely reflect the preliminary GDP expectation of 0.2%. The BOE stated that high energy prices and the VAT tax hike are the primary causes of the 4.4% inflation mark, and not a result of economic activities. Obviously because of the higher commodities and taxes, consumers’ disposable incomes are being squeezed out and they are struggling to pay for basic needs such as food and gas.

The MPC voted 0-0-9 to keep interest rates on hold as both Dale and Weale changed their votes from rate hikes just during the last rate meeting.   Market rate hike expectations for the end of the year have diminished significantly and the likelihood of it happening is next to none.

Additional Thoughts

A strong release could create a huge surprise and bullish sentiment for the Sterling. If the deviations are met, look to BUY the GBP/USD around the 1.6300 mark.
 
Pre-news Consideration

There is no pre-news consideration for this release today.

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…

Thanks,