Canadian GDP Keeps USD/CAD Temporarily Under 1.25

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Canadian GDP Keeps USD/CAD Temporarily Under 1.25

The USD/CAD has been consolidating since hitting a high on the year near 1.28. It has fallen to about 1.2360 and has been trading sideways since. We can see in the 4H chart a descending triangle that was broken. However, price failed to extend higher and continues to pressure the triangle support. This week, USD/CAD was attempting to advance above 1.25, but today’s (3/3) Canadian GDP data gave the CAD some strength across the board and the USD/CAD fell back below 1.25.

USD/CAD 4H Chart 3/3
usdcad 4h chart 3/3
(click to enlarge)

According to Statistics Canada, Canadian GDP in December grew 0.3%, rebounding from a -0.2% print in November. Forecasts called for a reading around 0.2%. So, we have growth that was barely better than expected in December, though some revisions made the previous months look better. Oct-Dec (Q4) growth came in at an annualized rate of 2.4%. Q3 growth was revised up to an annualized rate of 3.2% from 2.8%.

Still, we are seeing some decline in growth and until we can get strong inflation and 3-4 months of steady growth similar or better than this month, the BoC will still be dovish, and the loonie should be weak outside of the intra-session reaction.
can gdp
(click to enlarge; source: forexfactory.com)

Here’s a breakdown of this January’s GDP contributions in Q4:
Canadian GDP breakdown Q4 2014
(click to enlarge; source: StatCan)

The reaction to this data should not be strong enough to push below 1.2360 although it can bring the pair back in this 1.2360-1.24 area. A break below 1.2360 would likely require a disappointing NFP report on Friday from the US. Therefore, if USD/CAD tests the 1.2360-1.24 area, we should be ready for a near-term rally back towards the 1.25 area if not higher. The bullish outlook has the 1.28 handle in sight, with risk of extending to the 1.30-1.3060, 2008-2009 highs.

Now, if USD/CAD does break below 1.2360, let’s say due to a weak US NFP, then, it opens up the 1.21 and 1.20 levels, which are common prices during a couple of previous consolidation ranges.in January. The bearish outlook can strengthen if a pullback fails to push above 1.25.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.