[B]Trading the News: Canadian Annualized GDP (3Q)[/B]
[B][U]What’s Expected[/U][/B]
Time of release: [B]11/30/2007 13:30 GMT, 08:30 EST[/B]
Primary Pair Impact : [B]USDCAD[/B]
Expected: [B]2.3%
[/B]Previous: 3.4%
[B]How To Trade This Event Risk[/B]
The global, economic docket for Friday’s New York session will be dotted by a number of indicators. However, the only truly market-moving report scheduled for the period will be the September and third quarter growth numbers for Canada. The world’s eighth largest economy accelerated in the first half of this year – complementing (if not directly contributing to) an unprecedented rally in the Canadian dollar. As we head into the second half of the year though, the perfect alignment behind the loonie’s rally has broken down. First of all, the currency has become an irrefutable burden on expansion. While the extreme level of exchange rates has made imports cheaper, it has virtually killed the nation’s competitiveness on the global market – and is even beginning to depress demand for commodities like natural gas and copper. Even the domestic winds of growth are beginning to die down. Housing, labor and consumer spending trends have all shown signs of reaching an exhaustion point. And, even the turmoil in global financial markets could hold some sway over growth trends. Regardless, with the Canadian dollar already having pulled back sharply from its highs over the past few weeks, growth data could have profound affect on USDCAD price action. Despite the considerable fundamental influence this event risk may have, we will play it conservatively.
Looking for a long loonie position (short USDCAD), we will look for a significant, fundamental shift as it will need to overcome conflicting US data and the Friday wind-down in liquidity. From the data we will look for a quarterly print that is at least 0.4 percentage points better than expected (2.5 percent) and/or a September reading that is at least 0.2 percentage points above the consensus. If the surprises conflict we will not take a trade; so they must both offer positive surprises or one measurement could present a substantial upside print while the other comes in line. If we have a bullish fundamental mix, we will look for a red, five-minute candle to confirm entry on two lots of USDCAD at market. Our stop will be placed at the nearby swing low (or reasonable distance considering the level of surprise) and the first lot’s target will be immediately set equal to risk on that half. The second profit target will be determined by discretion (with a consideration for support and resistance and the weekend close). To preserve profit, we will move the stop on the second lot to breakeven when the first takes profit.
A weaker than expected outcome in the data is the direction complementary indicators are leaning - and the presence of parity could make for additional fireworks. We will apply the same discretion and trade setup for a long position that we did for the short, just in reverse.
