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USD/CAD to Breakout of Bearish Trend on Dismal Canada 1Q GDP

USD/CAD to Breakout of Bearish Trend on Dismal Canada 1Q GDP

2014-05-30 07:00:00
David Song, Strategist
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- Canada GDP to Slip Below 2% for First Time Since 4Q 2012.

- 2013 4Q GDP of 2.9% Marked the Fastest Face of Growth Since 3Q 2011.

Trading the News: Canada Gross Domestic Product (GDP)

Canada’s 1Q GDP report may spur a meaningful rebound in the USD/CAD should we see a marked slowdown in the growth rate.

What’s Expected:

USD/CAD 1Q GDP

Why Is This Event Important:

A dismal GDP report may instill a bearish outlook for the Canadian dollar as Bank of Canada (BoC) Governor Stephen Poloz keeps the door open to further reduce the benchmark interest rate, and the central bank head may continue to endorse a dovish outlook for monetary policy amid the persistent slack in the real economy.

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

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Retail Sales (MoM) (MAR)

0.3%

-0.1%

Wholesale Trade Sales (MoM) (MAR)

0.4%

-0.4%

Net Change in Employment (APR)

12.0K

-28.9K

The slowdown in private sector consumption along with the ongoing weakness in the labor market may spur a lackluster GDP print, and a dismal development may spur a bullish breakout in the USD/CAD as it raises bets for a BoC rate cut.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Average Weekly Earnings (YoY) (MAR)

--

3.1%

Existing Home Sales (MoM) (APR)

--

2.7%

Housing Starts (APR)

175.0K

194.8K

Nevertheless, the ongoing expansion in the housing market paired with the rebound in building activity may produce another GDP reading above 2.0%, and a better-than-expected print may generate a further decline in the USD/CAD as the pair remains the bearish trend carried over from March.

How To Trade This Event Risk(Video)

Bearish CAD Trade: Growth Rate Slips Below 2.0%

  • Need green, five-minute candle following the GDP report to consider a long USD/CAD entry
  • If the market reaction favors a bearish 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: Canada 1Q GDP Exceeds Market Expectations

  • Need red, five-minute candle following the release to look at a short USD/CAD trade
  • Carry out the same setup as the bearish loonie trade, just in reverse

Potential Price Targets For The Release

USD/CAD Daily

USD/CAD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Remains at Risk for Fresh Lows as Price & RSI Retain Bearish Trend
  • Interim Resistance: 1.1000 (1.618% expansion) to 1.1020 (23.6% retracement)
  • Interim Support: 1.0710 (100.0% expansion) to 1.0730 (78.6% retracement)

Read More:

Price & Time: Looking For A Range Low In NZD/USD Next Week

Euro and Gold Prices Near Critical Levels - What’s the Next Move?

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)

4Q

2013

02/28/2014 13:30 GMT

2.6%

2.9%

-17

-47

4Q 2013 Canada GDP

USD/CAD Chart

The Canadian economy grew at a faster pace during the last three-months of 2013, with the growth rising another 2.9% following the 2.7% advance in the third-quarter, and the data print may encourage an improved outlook for the Canadian dollar as it raises the outlook for growth and inflation. The USD/CAD slipped back below the 1.1100 handle following the stronger-than-expected GDP print, with the pair ending the day at 1.1064.

--- Written by David Song, Currency Analyst

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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