Move over, FOMC! The release of the U.S. advance GDP reading for the last quarter of 2020 might prove to be more exciting for USD pairs this week, and here’s why.
What is this report all about?
GDP stands for gross domestic product, which is basically an economic report card. This figure sums up the country’s performance in terms of trade, consumer activity, government spending and investment for a particular period.
In Uncle Sam’s case, the GDP is printed on a quarterly basis in three versions: advance, preliminary, and final. Being the first among these releases, the advance version tends to be the most exciting one to watch and trade.
What’s expected for the upcoming release?
- Q4 2020 GDP likely rose by 4.2%
- Pickup in spending from holiday shopping and housing sales eyed
- Business activity probably took a hit on fresh caseloads and restrictions
The U.S. economy is expected to have expanded by 4.2% in Q4, which would be pretty impressive given the challenging year that was 2020.
Of course this would pale in comparison to the previous quarter’s jaw-dropping 33.4% growth figure, but you have to remember that the Q3 2020 reading came after back-to-back quarterly contractions of 5% and 31.4%.
Holiday spending during the Thanksgiving and Christmas shopping season likely contributed to growth in Q4, along with optimism about more government stimulus, the Biden administration, and the vaccine rollout.
Apart from that, leading indicators suggest that housing activity enjoyed a pickup towards the end of last year as bargain hunters took advantage of cheaper property prices.
But even if the headline figure manages to surprise to the upside, analysts warn that underlying data might highlight very weak spots in the U.S. economy moving forward.
For one, business activity likely lost positive momentum when COVID-19 cases rose again and the new strain of the COVID-19 virus came to light. Another set of business restrictions likely spurred layoffs, and government aid from a few months back was likely used up by most households by then.
How might USD pairs react?
In the previous advance GDP release, the actual figure turned out stronger than expected at 33.1% versus the 32.0% consensus. To top it off, the earlier reading enjoyed a positive upgrade, too.
With that, it’s no surprise that the Greenback rallied across the board after seeing the results. Dollar bulls must’ve been anticipating an upbeat read since the scrilla was slowly climbing a few hours prior to the release.
The dollar was able to sustain its climb throughout the rest of the U.S. trading session before consolidating or retreating slightly against its counterparts.
A weaker than expected result, on the other hand, could mean some downside for the dollar since it would mean that Uncle Sam might still be reeling from the pandemic.
This would suggest that the Fed and U.S. government have a lot more work to do when it comes to reviving the economy, likely through more easing or stimulus efforts.
Are you guys planning on trading the U.S. advance GDP release this week? What’s your game plan?
This post first appeared on babypips.com
