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USDCAD to Eye Fresh Highs on Dismal 4Q Canada GDP Report

USDCAD to Eye Fresh Highs on Dismal 4Q Canada GDP Report

2014-02-28 08:00:00
David Song, Gregory Marks,
Share:

- Canada GDP to Slow for Second Time in 2013

- Growth Rate Expected to Exceeded 2% for Third Time in 2013

Trading the News: Canada Gross Domestic Product (GDP)

A slowdown in Canada’s Gross Domestic Product (GDP) may heighten the bearish sentiment surrounding the Canadian dollar as it raises the Bank of Canada’s (BoC) scope to cut the benchmark interest rate later this year.

What’s Expected:

Time of release: 02/28/2014 13:30 GMT, 8:30 EST

Primary Pair Impact: USDCAD

Expected: 2.6%

Previous: 2.7%

DailyFX Forecast: 2.5% to 2.6%

Why Is This Event Important:

In light of the protracted recovery, Governor Stephen Poloz may take additional measures to encourage a ‘soft landing,’ and a material shift in the policy outlook may produce fresh highs in the USDCAD as the Federal Reserve remains poised to discuss another $10B taper in March.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Retail Sales (MoM) (DEC)

-0.4%

-1.8%

Existing Home Sales (MoM) (JAN)

--

-3.3%

International Merchandise Trade (DEC)

-0.65B

-1.66B

The widening trade deficit along with the slack in private sector consumption may generate a dismal GDP report, and a material slowdown in the growth rate may trigger a bearish reaction in the Canadian dollar as it heighten bets for a BoC rate cut.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Net Change in Employment (JAN)

20.0K

29.4K

Ivey Purchasing Manager Index s.a. (JAN)

51.0

56.8

Average Weekly Earnings (YoY) (NOV)

--

2.5%

Nevertheless, the pickup in employment paired with the rise in business investments may help to produce a positive result, and better-than-expected GDP print may spur a short-term pullback in the USDCAD as market participants scale back bets for more monetary easing.

How To Trade This Event Risk(Video)

Join DailyFX on Demand to Cover Canada’s GDP Report LIVE

Bearish CAD Trade: GDP Report Shows Marked Slowdown in Growth

  • Need green, five-minute candle after the GDP report to consider long USDCAD entry
  • If the market reaction favors a short Canadian dollar trade, establish long with two position
  • Set stop at the near-by swing low/reasonable distance from cost; use at least 1:1 risk-to-reward
  • Move stop to entry on remaining position once initial target is hit, set reasonable limit

Bullish CAD Trade: Growth Rate Rises 2.6% or Greater

  • Need red, five-minute candle following the release to look at a short USDCAD trade
  • Carry out the same setup as the bearish CAD trade, just in the opposite direction

Potential Price Targets For The Release

USDCAD Daily

Forex_USDCAD_to_Eye_Fresh_Highs_on_Dismal_4Q_Canada_GDP_Report_body_Picture_2.png, USDCAD to Eye Fresh Highs on Dismal 4Q Canada GDP Report

Chart - Created Using FXCM Marketscope 2.0

  • Lack of Momentum to Close Above 1.1150 to Highlight Lower High
  • Relative Strength Index Retains Long-Term Bullish Momentum
  • Interim Resistance: 1.1194 Pivot to 1.1230 (50.0% expansion)
  • Interim Support: 1.0900 Pivot to 1.0930 (61.8% expansion)

Impact that the Canada GDP report has had on CAD during the last quarter

Period

Data Released

Survey

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

3Q 2013

11/29/2013 13:30 GMT

2.5%

2.7%

+12

+37

3Q 2013 Canada Gross Domestic Product

Forex_USDCAD_to_Eye_Fresh_Highs_on_Dismal_4Q_Canada_GDP_Report_body_Picture_1.png, USDCAD to Eye Fresh Highs on Dismal 4Q Canada GDP Report

The Canadian Dollar saw a bit of strength following the better than expected QoQ GDP print, but the USD/CAD pair remained supported by a key break and hold of former resistance at the July and September highs. The pair closed out the Thanksgiving weekend higher and has since continued to push higher on technical factors as well as fundamentals. Data out of Canada since December has been dismal to say the least, but as of late we have seen a slight correction to the downside. A poor GDP print here may help fuel momentum in the breakout.

--- Written by David Song, Currency Analyst and Gregory Marks

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

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