USD/CAD Signals Bullish Continuation after Weak CAN GDP Data

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Canadian GDP Contracted in August; USD/CAD Signals Bullish Continuation

The Canadian economy contracted in August as the GDP data released today showed a -0.1% print, missing forecasts of a 0.0% reading, which was the reading in July. Before that, we had 6 straight months of increase. It seems like the Canadian economy is hitting a temporary ceiling.

CAN GDP

(click to enlarge; source: StatCan)

Goods production fell 1.0% in August as most major subsectors registered declines, led by oil and gas extraction and manufacturing. Utilities increased in August.

The output of service industries advanced 0.2% in August as most major subsectors posted growth. Gains were most notable in the public sector (education, health and public administration combined), wholesale trade and the finance and insurance sector. Transportation and warehousing services as well as retail trade declined.”
(Source: StatCan)

While the data is not far from the expected flat reading. It does take away any resilience the CAD has been showing lately. The USD/CAD for example has been consolidating, in a falling wedge pattern. The market was testing the wedge resistance heading into the GDP data, and it broke above the pattern after data was released.

USD/CAD 4H Chart 10/31
usdcad 4h chart 10/31

(click to enlarge)

The 4H chart shows the reaction breaking the falling wedge and pushing towards the next resistance pivot just under 1.13. This is a bullish continuation signal that should push above 1.13 as well. The USD/CAD then looks poised to threaten the 1.1385 high on the year, with risk of further upside.

If price does break above 1.1385-1.14, what’s the next key resistance? First of all, above 1.14, USD/CAD will be in highs not seen since 2009. When we look at the monthly chart below, we can see that price has been building up since 2011, and the next key pivot will be around 1.1724. We can see it work as support and resistance going back to 2004.

After a break above 1.14, we should start to expect support in the 1.1250-1.13 area upon a subsequent bearish correction. Doing so should strengthens the bullish outlook toward 1.17.

USD/JPY Monthly Chart
usdcad 10/31 monthly

(click to enlarge)

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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.