U.S. and Canadian GDP: What to Watch Out For

The upcoming GDP releases from the U.S. and Canada aren’t really marked as top-tier events on most forex calendars since one is just a revised version of an earlier report while the other is just a monthly reading and not quarterly data. Well, here are a few reasons why these GDP figures might still move the markets on Friday:

1. Canada’s latest GDP release is for March

…which means that it’ll round up the first three months of the year, giving market watchers a look at the country’s Q1 GDP figure. With that, forex traders can be able to make better comparisons of Canada’s economic performance with the rest of its peers while also seeing if the growth figures are in line with the central bank’s forecasts.

The Bank of Canada (BOC) already predicted that economic data for the first quarter of 2015 would be weak, citing that the effect of the oil price slump is likely front-loaded in the first few months of the year. Analysts are expecting to see a 0.2% monthly GDP expansion for March, following the flat reading in February and the 0.2% contraction in January. All in all, these could sum up to a slightly negative reading for Q1, with a larger-than-expected contraction likely to drag the Loonie lower.

2. U.S. Q1 2015 GDP could show a contraction

Yep, you read that right. As though the meager 0.2% advanced GDP estimate ain’t bad enough for the U.S. economy, the preliminary version of the report could undergo a massive downgrade to show a 0.9% contraction for the period. To put things in perspective, recall that the U.S. chalked up a 3.9% growth figure in Q3 2014 followed by a 2.2% GDP reading for Q4 2014, which means that a sudden contraction might ring some alarm bells.

Most forex market participants probably saw this coming though, as the U.S. has printed one too many disappointing reports around the start of the year. The Fed assured that this slowdown is just “transitory” and that a rebound is set to take place sooner or later, which suggests that dollar bulls might be able to brush off a negative GDP reading and focus on forward-looking reports. However, a much weaker-than-expected growth figure could once again hurt the odds of seeing a Fed rate hike sometime this year and force the dollar to retreat.

3. End of the month profit-taking

This ain’t really about the actual GDP reports but I think it’s worth noting that these releases are scheduled at the end of the week AND the end of the month, which means that majority of forex traders might be closing their positions to crunch the numbers on their P/L statements then.

Based on my observations of price action around these instances, the initial reaction to top-tier releases tends to be short-lived, with sharp reversals often taking place towards the end of the forex trading session. Now that’s something you might wanna watch for if you’re just looking to ride the market reaction to the GDP releases and hold on to most of your day trade profits before the closing bell tolls.