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USD/CAD to Extend Bullish Pattern on Dismal Canada GDP Report

USD/CAD to Extend Bullish Pattern on Dismal Canada GDP Report

David Song, Strategist

- Canada Gross Domestic Product (GDP) to Contract for First Time Since 2Q 2015.

- 1.5% Contraction Would Mark Biggest Slowdown Since 2Q 2009.

For more updates, sign up for David's e-mail distribution list.

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.

What’s Expected:

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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

Release

Expected

Actual

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

Release

Expected

Actual

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 Daily

USD/CAD Daily Chart
  • 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!

Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the "Traits of Successful Traders" series.

Impact that Canada Gross Domestic Product has had on USD/CAD during the last quarter

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

1Q

2016

05/31/2016

12:30 GMT

2.8%

2.4%

+38

+64

1Q 2016 Canada Gross Domestic Product (GDP)

USD/CAD 5-Minute

USD/CAD Chart

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.

Get our top trading opportunities of 2016 HERE

Read More:

S&P 500: Yellen Sparks Volatility, Market Starts Week at Pivotal Area

USD/JPY Technical Analysis: Implied Vol Shows Trader’s Nerves

EUR/JPY Technical Analysis: Sticking to the Range

EURUSD: Waiting for the Dip & Rip- Key Resistance at 1.1400

--- 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.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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