08/27/2010 US Prelim GDP

8:30am (NY Time) US Prelim GDP Forecast 1.5% Previous 2.4%
ACTION: USD/JPY BUY 1.8% SELL 1.2%

There are talks of an even worse release than the already deeply discounted forecast of 1.5%.

1. Better GDP = Risk Appetite: JPY should lose strength immediately, making all JPY pairs move up (GBP/JPY, EUR/JPY, USD/JPY, AUD/JPY), and expect to see USD remaining strong against other majors.
2. Worse GDP = Risk Aversion: JPY should gain strength immediately, dragging down the USD/JPY pair. USD should also be weak across the board. If the GDP release drops down significantly, we could see flight for safety movement in the market as USD could actually gain strength on the back of demands for US treasuries. This would be an extreme case if GDP misses expectation by a huge deviation such as 1% or more.

I think we may actually see some reversal in risk aversion sentiment after this release as speculators will be doing the typical "buy on rumor, sell on news". On this matter, long EUR/USD.