[Closed +82 pips] Trade Plan: United States GDP Growth Rate (Advance Estimate) for Q2 2024
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Tuesday, 23 July, Week 30: This report provides a comprehensive analysis of the upcoming United States GDP Growth Rate (Advance Estimate) for Q2 2024, scheduled for release on Thursday, 25 July, Week 30. It is intended to guide Forex traders in developing a trading strategy around this high-impact economic event. The report examines the significance of the GDP report, analyses recent economic indicators, assesses the consensus forecast of 1.9%, and outlines potential trading scenarios based on the actual outcome relative to expectations.
Trading involves a possibility of losing money therefore all decisions in market speculation are undertaken at your own financial risk.
United States GDP Growth Rate
The United States GDP Growth Rate report is a crucial economic indicator that measures the change in the total value of goods and services produced in the US economy during a specific period. It provides a snapshot of the overall health and direction of the economy. Forex traders closely monitor this report as it significantly impacts the value of the US dollar. A strong GDP growth rate typically leads to a strengthening of the dollar, while a weak growth rate can trigger a decline.
Several economic indicators are associated with GDP growth and provide insights into the potential direction of the upcoming report. These include:
Consumer Spending: This is the largest component of the US economy, accounting for roughly two-thirds of GDP. Recent data suggests a mixed picture for consumer spending. Retail sales stalled in June, following an upwardly revised 0.3% rise in May. However, sales excluding food services, auto dealers, building materials stores, and gasoline stations, which are used to calculate GDP, were up 0.9%, the largest increase since April 2023.
Business Investment: This component reflects spending on capital goods, equipment, and structures. Durable goods orders, a key indicator of business investment, rose by 0.1% in May, marking the fourth consecutive monthly advance. This suggests continued, albeit slow, growth in business investment.
Industrial Production: This indicator measures the output of factories, mines, and utilities. Industrial production increased by 0.6% in June, exceeding expectations. This points to continued momentum in the industrial sector.
Housing Market: The housing market has shown signs of cooling in recent months. Housing starts rose by 3% in June, rebounding from a decline in May, while building permits increased to 1.446 million, the highest in three months. However, existing home sales declined 0.7% in May, the lowest in four months.
Inflation: Inflation has eased from its peak but remains above the Federal Reserve's 2% target. The CPI inflation rate declined to 3% in June, the lowest since June 2023, while the core PCE inflation rate, the Fed's preferred measure, eased to 2.6% in May.
The consensus forecast for the Q2 2024 GDP growth rate is 1.9%. This suggests that economists expect a moderate acceleration in economic growth compared to the 1.4% growth rate recorded in Q1 2024. The recent S&P Global US Services PMI report showed a sharp expansion in services sector activity, reaching 55.3 in June, the fastest pace since April 2022. However, the ISM Services PMI contracted to 48.8 in June, indicating a divergence in the data.
The Federal Reserve's own projections, released in June, see the economy expanding 2.1% in 2024. However, the Fed also acknowledged downside risks to this outlook, particularly if inflation proves more persistent or consumer spending weakens.
For Forex traders, the actual GDP growth rate relative to the consensus forecast will be crucial. A significant beat on expectations could trigger a rally in the US dollar, while a miss could lead to a decline.
TRADE THESIS
Post-Release Strategy (Above Consensus)
If the GDP growth rate comes in above the consensus forecast of 1.9%, it would signal a stronger-than-expected economic recovery and could trigger a rally in the US dollar.
Trade: Long USD/JPY
Stop Loss: 154.5
Entry: market price so long as within 200-pips of 154.5
Take Profit: Consider below 159
Justification: A strong GDP report would reinforce the view that the US economy is on a solid footing, potentially leading to a widening of interest rate differentials between the US and Japan, particularly if the Bank of Japan maintains its dovish stance at its meeting on Wednesday, 31 July, Week 31. This would make the US dollar more attractive to investors, driving up the USD/JPY exchange rate.
Post-Release Strategy (Below Consensus)
If the GDP growth rate comes in below the consensus forecast of 1.9%, it would suggest that the economic recovery is losing momentum and could trigger a decline in the US dollar.
Trade: Short USD/JPY
Stop Loss: 158.2
Entry: market price so long as within 200-pips of 158.2
Take Profit: Consider above 155
Justification: A weak GDP report would raise concerns about the outlook for the US economy, potentially leading to a narrowing of interest rate differentials between the US and Japan, particularly if the Bank of Japan signals a potential shift towards policy normalisation at its meeting on Wednesday, 31 July, Week 31. This would make the US dollar less attractive to investors, driving down the USD/JPY exchange rate.
Conclusion
The upcoming United States GDP Growth Rate (Advance Estimate) for Q2 2024 is a high-impact economic event that could significantly impact the Forex market, particularly the USD/JPY exchange rate. Traders should carefully analyse recent economic indicators, assess the consensus forecast, and develop a trading strategy based on the potential outcomes relative to expectations. A short position with a tight stop loss is justifiable pre-release, given the USD/JPY's recent rally and the potential for a downside surprise. Trading opportunities will also arise after the data is published, with the direction of the trade depending on the actual GDP growth rate relative to the consensus forecast and the outcome of the Bank of Japan's monetary policy meeting on Wednesday, 31 July, Week 31.
References
U.S. Bureau of Economic Analysis (BEA): www.bea.gov
U.S. Bureau of Labor Statistics (BLS): www.bls.gov
Federal Reserve: www.federalreserve.gov
Trading Economics: tradingeconomics.com
S&P Global: www.spglobal.com
National Association of Home Builders (NAHB): www.nahb.org
National Association of Realtors: www.nar.realtor
Standard & Poor's: www.spglobal.com/spdji
University of Michigan: data.sca.isr.umich.edu
Institute for Supply Management (ISM): www.instituteforsupplymanagement.org
Federal Reserve Bank of New York: www.newyorkfed.org
Federal Reserve Bank of Philadelphia: www.philadelphiafed.org
Federal Reserve Bank of Dallas: www.dallasfed.org
Federal Reserve Bank of Chicago: www.chicagofed.org
Technometrica Market Intelligence/RealClearMarkets: www.realclearmarkets.com
Bank of Japan: www.boj.or.jp/en/