Trading the US GDP

The second estimate of the third quarter US gross domestic product (GDP) is due for release tomorrow. The GDP is expected to be revised higher to 2.0% from the preliminary estimate of 1.5%. The economy expanded 3.9% in the second quarter. The core personal consumption expenditure (PCE) is seen unchanged at 1.3%.

GDP a non‐event for the markets?

The December Fed rate hike widely considered as a done deal; especially after the October’s payrolls report. From now till Dec 16th, we will have tomorrow’s GDP report, durable goods report and Next Friday’s NFP report. Markets believe the Fed has made up its mind to move rates; albeit at a very slow pace. Hence, all three data sets; if shockingly weak; may trigger speculation of a very minor move in rates as opposed to a widespread belief of 12.5bps or 25 bps move

The GDP report could turn out to be a non‐event in case it prints around estimates. Overall, we have the following scenarios worth looking at‐

Gold Weekly Chart – Flirting with channel support

• Gold’s 5‐week losing streak and oversold nature on the daily charts makes it an ideal candidate for a technical rebound in case the GDP is revised lower.

• The metal appears poised to form a bullish pin bar on weekly and head towards USD 1090‐ 1100/Oz.

• A daily close below 1069 could be bearish, however, oversold nature warrants a minor technical correction before sell‐off resumes.

EUR/USD – lower lows on price, higher lows on RSI

• On charts, the pair appears poised for a technical correction to 1.0750 and possibly to 1.0811 (23.6% of 1.1495‐1.06).

• Since Nov 6, the prices have formed lower lows, accompanied by the RSI which has formed higher lows on daily as well as intraday time frames.

• In case, the GDP is way above 2%, the currency pair would resume its fall towards 1.0520 (Apr 13 low).

GBP/USD – Risks further sell‐off on strong US GDP

• Sterling’s lower highs formation on the daily following an inverted head and shoulder breakout failure in June makes it an ideal candidate for a sharp sell‐off to 1.5‐1.4980 levels; especially if the US GDP prints way above 2%.

• The sell‐off may continue even if the GDP turns out to be a non‐event; given the indicators are still not oversold.

• Only a daily close above 1.5248 (50% of Apr‐Jun rally) would offer hope to Sterling bulls.

• GBP/CAD could turn out to be a major loser as well in case the GDP prints above 2% and the oil prices extend gains tomorrow following a sharp recovery of lows seen today.

Core PCE may be ignored so long as it does not print horribly weak. Moreover, the Fed appears more focused on jobs, which are doing well. Hence, core PCE may not attract much attention so long as it does not print horrible weaker. Meanwhile, an uptick would only add to USDs momentum.

Fed’s discount rate decision today

The USD may witness a broad based rally well ahead of the US GDP report, if the Fed hikes the discount rate today. Such a move would make the GDP report a non‐event in case of all three scenarios.