Forex Trading Guide: U.K. Preliminary GDP Report for Q3 2014

Can’t get enough of economic reports to trade? There’s another big one comin’ right up this week so let’s put our heads together and figure out how we can make pips off the U.K. GDP release this Friday.
But first, I’ll go through the usual routine of discussing why this report matters, what happened last time, what’s expected, and how the pound usually reacts.

What is the U.K. preliminary GDP report all about?

As you’ve learned in the School of Pipsology lesson on Economic Reports, a country’s quarterly GDP is basically it’s report card for the period. It takes consumer spending, business investment, trade activity, and government spending into account and rolls it up in one neat figure.
There are three versions of the GDP for the U.K. economy: the preliminary, second estimate, and final. Being the initial release, the preliminary figure tends to spark the strongest market reaction as it provides the first glimpse into how economic performance fared in the quarter.

What happened last time?

The U.K. economy expanded by 0.9% in the previous quarter, slightly above expectations of 0.8% growth and in line with Q1′s 0.8% GDP reading. At that time, the IMF also decided to upgrade their annual GDP forecasts for the U.K., which has been one of the strongest performing major economies then.
However, GBP/USD was barely able to benefit from the release, as the results were pretty much priced in and dollar bulls were in control of price action a few months back.

What is expected for this release?

For the third quarter, a weaker pace of growth is projected, as manufacturing and services activity slowed during the period. Analysts are expecting to see a quarterly GDP reading of 0.7%.
Pound pairs might consolidate prior to the release, with the actual report likely to spur volatility for the next few 15-min or 1-hour candles. If volatile price action ain’t your cup of tea, there’s no shame in sitting on the sidelines and just watching the charts around that time. Once the details are in and economic hotshots have given their take on the numbers, you might have an easier time figuring out your longer-term GBP bias.

How might the pound react?

As it is, the pound is still being weighed down by weaker rate hike expectations, as the BOE gave a surprisingly dovish policy statement recently. A lower than expected GDP reading would support this shift to a more cautious stance, as the possibility of a euro zone recession could could further hurt growth prospects.
On a brighter note, an upside surprise could confirm that the U.K. economy has a pretty good chance of staying resilient in the midst of global economic challenges. This could allow the pound to recover against its forex counterparts and establish stronger and longer-term trends.