Forex

Market participants say they will be reluctant to stake out positions based on Thursday's U.S. gross domestic product figures because of the onslaught of economic data that follows the report.

The U.S. Bureau of Economic Analysis will release second quarter GDP data at 8:30 a.m. EDT. The economist consensus is for annualized growth of 2.3% but estimates range from 0.9% to 4.2%.

Market watchers say a figure close to consensus will likely be ignored.

"Between 1.8% and 2.5% probably won't elicit much of a response," said Steve Malyon, currency strategist at Scotia Capital.

Strategists say the backward-looking nature of the GDP data and the temporary effects of the government economic stimulus cheques make it an unreliable indicator. They say the day's attention would then shift to reports on weekly jobless claims and the Chicago purchasing managers' index. Malyon suspects a rise in jobless claims to 420k would overshadow a stronger-than-expected GDP report

"I could easily see that sort of profile driving dollar weakness. Even if the second quarter was strong, the jobs market could be falling off a cliff," Malyon said.

Win Thin, senior currency strategist from Brown Brothers Harriman, said any reaction to GDP would be capped by Friday's July report on non-farm payrolls.

"Q2 is in a sense old data and so is unlikely to have much impact ahead of July jobs report on Friday, which is the first glance at Q3. Market is already prepared for a strong Q2 growth rate, but will need to see that momentum is carrying over into Q3," Thin said.

Strategists say the reaction to the GDP figures will also depend on the breakdown of different components. Michael Pond, U.S. Treasury strategist at Barclays Capital, said market participants will be trying to factor out aberrations in inventories and construction spending to get a clearer picture of the underlying economy.

Economists at Barclays are forecasting an above consensus 2.5% figure.

"A number well-under 2% or close to 3% would move the market," Pond said, adding the 10-year note could "easily" move five basis points.

On Wednesday, yields on the 10-year note traded between 4.01% and 4.11% before closing at 4.05%. Recently, there has been a high correlation between equities, fixed income and crude oil.

"We care about the stock market and what oil is doing," said Thomas Roth, head of U.S. government bond trading at Dresdner Kleinwort.

In the medium term, Roth said 10-year note yields are trapped in a range between 3.85% and 4.25% but he expects them to go higher eventually. Still, he said the situation is highly dependent on how commodities and the housing market behave.

"Reading the tea leaves is pretty easy but at this point it's difficult to tell how those tea leaves are going to fall," Roth said.

Canadian market participants will also have to deal with the simultaneous release of May Canadian GDP figures.

Mark Frey, vice president of FX trading at Custom House, said the loonie will be more sensitive to a weak Canadian GDP report than a strong one. The Canadian dollar traded as low as 0.9737 on Wednesday and Frey said the combination of soft Canadian GDP and a strong report from the U.S. could push the loonie below its 10-month low of 0.9638.

"I think it will take a significant divergence," Frey said. "Until that happens, I think it's still safe to play the range still."

Bob Block, director of FX sales at BMO Capital Markets, expects the Canadian GDP report to have little impact on currency markets.

"It's dated info from May. It shouldn't be that consequential to the markets right now," Block said.