US GDP Sharply Revised Downwards – Trading Remains Tight

The second release of GDP for the second quarter was indeed bad – a downwards revision from 2.4% to 1.6%, slightly better than a revision to 1.5%. The initial reaction was dollar positive, but this was quickly erased.

EUR/USD was down from 1.2720 (almost the resistance line) to 1.27. This drop was very limited and the pair returned upwards. The market is still awaiting Ben Bernanke’s speech in Jackson Hole. He’ll have something to relate to.

GBP/USD dropped to the support line of 1.5470 immediately after the release. AUD/USD rises towards 89 cents. USD/CAD is down just under 1.06. All have recovered in the meantime. Tension is high. As aforementioned, these moves are limited as the result was quite accurately predicted, and Bernanke’s speech at 14:00 GMT is awaited.

Earlier this week, we received another bunch of terrible American figures. The one figure that stood out was existing home sales, that plunged by 27% and shocked the markets, suggesting the US could fall alone.

Also sales of new homes dived more than expected. Durable goods orders rose by only 0.3% (exp. +2.9%) and core durable goods orders, the more important figure, dived by 3.8% A rise was predicted. The only light in the dark tunnel was a small drop in unemployment claims, although last week’s figure was revised higher.

These figures, together with others from previous weeks such as the Non-Farm Payrolls from August 6th, raised the fear of a double-dip recession in the US. Nouriel Roubini, also known as Dr. Doom, said there’s now a 40% chance of double-dip recession, something that is very rare.

With the growth rate quickly deteriorating from over 5% in Q4 2009 to over 3% in Q1 and just over 1% in Q2, a negative growth figure in Q3 cannot be ruled out, especially if employment remains so weak.

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