USD/JPY: Trading the US Preliminary GDP

US Preliminary Gross Domestic Product (GDP) measures production and growth of the economy. Analysts consider GDP one the most important indicators of economic activity. A reading which is better than the market forecast is bullish for the dollar.

Here are all the details, and 5 possible outcomes for USD/JPY.

Published on Wednesday at  12:30 GMT.

Indicator Background

US  Preliminary GDP is a key economic indicator, and provides an excellent indication of the health and direction of the US economy. Traders should pay particular attention to this economic indicator, as any unexpected reading could change the direction of USD/JPY.

The indicator slumped in  Q1, dropping to 1.9%.  The markets are expecting a further decline in Q2, with an estimate of 1.7%. Will the indicator surprise the markets with a better release than forecast?

Sentiments and levels

The yen benefited from the Fed’s dovish meeting minutes. However, these hopes are slowly fading out. A disappointment from Ben Bernanke in Jackson Hole could push  USD/JPY back up.  Traders should keep in mind that  US is still looking better than Japan in terms of growth, and that Japan’s legendary trade  surpluses are a thing of the past.  So, the overall sentiment is neutral on USD/JPY towards this release.

Technical levels, from top to bottom: 79.70, 79.10, 78.80, 78, 77.50, and 77.

5 Scenarios

1. Within expectations: 1.4% to 2.0%. In such a scenario, USD/JPY is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 2.0% to 2.3%: An unexpected higher reading can push the pair  above one resistance line.
3. Well above expectations: Above 2.3%: An unexpected surge in the reading would help the yen, and a second  line of resistance  might be broken as a result.
4. Below expectations: 1.0% to 1.3%: A lower GDP figure than predicted could cause the pair to climb and fall below one support level.
5. Well below expectations: Below 1.0%. A very weak reading could hurt the dollar, and USD/JPY could break a second  level of support.

For more on the yen, see the USD/JPY forecast.