How Accurate is the Advanced GDP?

The advanced GDP came in so high we wonder if the US Government didn't have some Chinese accountants, who specialize in doctoring numbers, assisting as consultants.  The Commerce Dept. says this increase to 5.7% came from an increase in inventory numbers, overcoming lax consumer demand.  On Friday Feb. 26 we get the preliminary GDP number.  If we say the over/under number on the next report is 5%, where will the smart money go?

Conventional wisdom says you should not argue with government numbers.  Accept them as they are and see how the market reacts.  Numbers are not as important as the markets response.  Equities have moved up smartly, as might be expected with the unexpected strong growth.   Closing prices though, are a lot more important than the mid- morning  levels so we will see if the market can shrug off the bearish virus that has recently been spreading.

The Canadian government also reported their GDP numbers today, and the subsequent trade deserves closer examination.   The Canadian number came in at a mere +0.4% monthly increase, a touch better than the 0.3% expected.  Granted this is a monthly number versus a US quarterly number, but it is a big discrepancy and the Cad should lose to the USD.  Right?  Well this is not the way it is trading.  We are currently trading 1.0675, only slightly better than yesterdays 1.0660 close.  In yesterdays futures trade, the open interest went down a healthy 3700 contracts as the commodity bulls continued to throw in the white towel.  The loonies failure to lose more to the USD in view of the news appears a little friendly to the loonie.  It is tempting to try selling the pair around current numbers but we will wait until Monday to see what develops.

The Greek financial tragedy continues dragging the Euro ever lower.  While Greece accounts for only 2/3% of the Euro GDP, at the moment they are getting lots of attention.   An article in the Economist of the Jan 28th entitled "A Greek bailout soon?" suggested there may be a solution pending.  They said:

 "IN Brussels policy circles, the question asked about a bailout of Greece used to be: are European Union governments willing to do this? Now, I can report, the question among top EU officials has changed to: how do we do this?

Twice in the past 48 hours I have heard very senior figures—both speaking on deep background—ponder the political mechanics of how large sums in external aid could be delivered to Greece before it defaults on its debts: a crisis that would have nasty knock-on effects for the 16 countries that share the single currency."

It looks like the US GDP number helped the dollar versus Euro today adding to the pressure from the Greek debt issues.  The Euro's slide has picked up momentum under 1.40.  We suspect longs are capitulating but the open interest in the futures market is still climbing indicating the bears are selling.  With the 4Hr RSI trading under 22, the short side of the Euro has little appeal, and a surprise solution of the Greek debt issues would really stir things up.

Author: Ralph Shell - ForexRazor Analyst - Graduated from a small Ohio liberal arts college. Graduate studies in economics and history at Duke University. Ten years experience trading cash commodities in domestic and export markets. Former commodity analyst with Merrill Lynch in Chicago. Member of and floor trader at the Chicago Board of Trade for 18 years.