USD/CAD to Extend Bullish Pattern on Dismal Canada GDP Report
- Canada Gross Domestic Product (GDP) to Contract for First Time Since 2Q 2015.
- 1.5% Contraction Would Mark Biggest Slowdown Since 2Q 2009.
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Trading the News: Canada Gross Domestic Product (GDP)
Canada’s 2Q Gross Domestic Product (GDP) report may drag on the loonie and fuel the near-term advance in USD/CAD as the economy is expected to contract 1.5% following the 2.4% expansion during the first three-months of 2016.
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Why Is This Event Important:
A dismal GDP report may encourage the Bank of Canada (BoC) to further support the real economy as the region continues to adjust to the oil-price shock, but the one-off event spurred by the Alberta wildfires may have a limited impact on the monetary policy outlook as Governor Stephen Poloz and Co. argue ‘the risks to the profile for inflation are roughly balanced.’
Expectations: Bearish Argument/Scenario
|Retail Sales (MoM) (JUN)||0.5%||-0.1%|
|Building Permits (MoM) (JUN)||1.5%||-5.5%|
|Net Change in Employment (JUN)||5.0K||-0.7K|
Easing job growth accompanied by the slowdown in private-sector consumption may spark a sharp contraction in the growth rate, and a dismal GDP report may trigger further losses in the Canadian dollar as it drags on interest-rate expectations.
Risk: Bullish Argument/Scenario
|Ivey Purchasing Manager Index (JUN)||51.2||51.7|
|BoC Senior Loan Officer Survey (2Q)||--||23.9|
|CFIB Business Barometer (JUN)||--||60.0|
Nevertheless, the pickup in business sentiment paired with signs of stronger investment may generate a better-than-expected GDP print, and a positive development may spur a bullish reaction in the loonie as it raises the BoC’s scope to retain the current policy throughout 2016.
How To Trade This Event Risk(Video)
Bearish CAD Trade: Growth Rate Contracts Annualized 1.5% or Greater
- Need to see green, five-minute candle following the release to consider a long trade on USD/CAD.
- If market reaction favors a bearish loonie trade, buy USD/CAD with two separate position.
- Set stop at the near-by swing low/reasonable distance from entry; look for 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 2Q GDP Exceeds Market Expectations
- Need red, five-minute candle to favor a short USD/CAD trade.
- Implement same setup as the bearish Canadian dollar trade, just in reverse.
Potential Price Targets For The Release
- USD/CAD may work its way back to the July high (1.3253) as it carves a near-term series of higher highs & lows following the Fed Economic Symposium, all while the Relative Strength Index (RSI) breaks out of the bearish formation carried over from the end of July; next hurdle comes in around 1.3130 (38.2% retracement) followed by 1.3210 (78.6% expansion).
- Key Resistance: 1.3560 (100% expansion) to 1.3570 (50% retracement)
- Key Support: 1.2510 (78.6% retracement) to 1.2520 (38.2% expansion)
Check out the short-term technical levels that matter for USD/CAD heading into the report!
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Impact that Canada Gross Domestic Product has had on USD/CAD during the last quarter
|Period||Data Released||Estimate||Actual||Pips Change||Pips Change|
1Q 2016 Canada Gross Domestic Product (GDP)
The Canadian economy grew an annualized 2.4% in the first-quarter following a revised 0.5% expansion during the last three-months of 2015, with the pickup led by a 2.1% rise in private-sector consumption. A deeper look at the report showed business investment slipped another 1.7% during the same period after contracting 6.0% during the last three-months of 2015, while exports of goods and services advanced 6.9%. The Canadian dollar struggled to hold its ground following the weaker-than-expected Gross Domestic Product (GDP) report, with USD/CAD coming off of 1.3020 to end the day at 1.3091.
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--- Written by David Song, Currency Analyst
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