How To Trade The Q1 Preliminary GDP Report

Jun. 01, 2012 3:39 AM ET
Forex Gump profile picture
Forex Gump's Blog
32 Followers
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Contributor Since 2009

Forex Gump is my incognito name. My real name is Feras Gimp. When I was a kid, my parents would make me hunt and gather food. So every day, I would go fish at a nearby lake and gather corn from the fields. This process took me all day and left no time for me to play. Play time actually didn’t matter because I had no friends to play with anyway because they were all to busy hunting and gathering food as well. One day, while resting under an apple tree, an apple fell and hit me on the head. I came up with an idea where if I focused on just fishing and I could find somebody to focus on just gathering corn, maybe we could finish working faster and have enough time left to play. So I tried it and it worked. I wanted to fully understand why this worked and that’s where I discovered his love for economics. I later became a senior macroeconomics professor at Pipvard University in Pipston, Pipsachussetts. After several decades there, one day I decided to stop teaching. Leaving campus that afternoon, as I reversed out of the parking lot, I reversed into a pristine Bentley. It was Dr. Pipslow’s car. (Now a fellow blogger on BabyPips.com) He had been invited by the school to demonstrate his ability to float currencies. When we met each other, Dr. Pipslow already knew who I was. He told me not to worry about his whip and explained to me that BabyPips.com needed a macroeconomics expert and wondered if I was interested. I was. So the following day, I changed me name to Forex Gump and created Piponomics.

When, Where, What?

Tomorrow, at 12:30 pm GMT, the U.S. Bureau of Economic Analysis (BEA) will release the preliminary GDP report. Since it is considered as the broadest measure of economic activity, it is closely watched by traders and analysts alike.

The preliminary report is the also called the second GDP release, as it shows the revisions on the advanced GDP report released a couple of weeks back. Normally, higher numbers are good for the currency (the U.S. dollar in this case), and lower numbers are seen as bad.

Economists say that the first reading was too high. Growth for the first quarter of this year is expected to be revised down to 1.9% from 2.2%.

The Past

Legend:

• Pink Line - Day Open
• Purple Line - Week Open
• Orange Lines - Daily ATR (Day Open Price +/- ATR [20])
• Red Lines - Weekly ATR (Week Open Price +/- ATR [20])
• Green Lines - Previous Day's High/Low
• Blue Lines - Previous Week's High/Low

November 22, 2011 (revised to 2.0% from 2.4%)

EUR/USD 1-Hour Chart

February 29, 2012 (revised to 3.0% from 2.8%)

EUR/USD 1-Hour Chart

Based on the past two releases, it appears that EUR/USD's initial move faded upon reaching a major inflection point, regardless of how the results come out. From there, the bounce lasted from a minimum of 50 pips to a maximum of 150 pips.

How do I trade this?

If you're planning to trade this event, it might be best to sit on the sidelines during the initial move then wait for the price to stall at a major inflection point or at weekly levels. It could also help to watch out for reversal candlestick patterns on those levels to determine when to jump in.

If you're a conservative trader just like Happy Pip, you can aim for the minimum bounce of around 50 pips. But if you want to aim high and go for gold like Cyclopip usually does, you can try setting a 150-pip profit target.

A tight stop of 20 to 30 pips above or below the reversal candle is probably enough leeway for this setup, as it gives you a decent reward-to-risk ratio.

Of course, as mentioned in our risk disclosure, nothing is set in stone in the forex market as anything can happen! As traders, the most we can do is find our edge by playing the high-probability trades, sticking to the trading plan, and managing risk properly.

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.