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.
(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.”
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.
(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.
(click to enlarge)
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