[B]Trading the News: Canadian Annualized GDP[/B]
[B][U]What is Expected
[/U][/B]Time of release: [B]08/31/2007 12:30 GMT, 08:30 EST[/B]
Primary Pair Impact : [B]USD/CAD
How To Trade This Event Risk[/B]
The Canadian growth report has considerable market moving potential, especially when it may have a hand in guiding a somewhat undecided policy board at the Bank of Canada into either the dovish or hawkish camp. Expectations for the second quarter GDP report are low, with the official consensus calling of a 2.8 percent pace of expansion that stands clearly in contrast to the previous period?s strong number. The reduced pace will likely take its cue from the 0.3 percent pick up in growth over May and the unchanged reading in April. However, the outcome can be altered dramatically be the June growth report. Forecasts for the quarterly number generally close to actual prints since the majority of the data is already booked; but the monthly number has proven to be somewhat more volatile. The economy is expected to have passed the month unchanged, which would certainly unsettle the longer performance. At the same time, the precarious 0.0 percent read sets up a strong possibility for a sentimental reaction if the June figure tips higher on the back of business activity and trade or lower on domestic consumption and housing activity. Regardless of the outcome, any fundamental trade should take into consideration that price action could cool going into the weekend or a shudder in risk approval in capital markets could take charge.
Determining the fundamental significance of a strong growth report should take into consideration both the quarterly and monthly figures. Optimally, both would print above expectations to give a USDCAD short signal. As always, the same entry criteria and trade structure should be observed in executing a trade. A weak fundamental report and a red five minute candle would give the signal to short; but volatility should be monitored after the trade is placed to see if price action is truly responding to the data. Entry should be made at the market on two lots, both with stops above the nearby swing high. The target on the first lot should equal its own risk, while the second should be determined on discretion (keeping in mind that price action will cool into the weekend). When the first lot makes profit move the stop on the second to break even.
A disappointing monthly GDP figure could easily depress the quarterly report below the market?s official consensus. Such an outcome would certainly exacerbate fears that the Canadian economy will be vulnerable to a heavy hit from global credit problems and the Bank of Canada?s previous rate hike would not be repeated in the foreseeable future.