USD/CAD: Trading the Canadian GDP May 2014

Canadian GDP is a measurement of the production and growth of the economy. Analysts consider GDP one the most important indicators of economic activity, and  a reading which is better than the market forecast is bullish for the Canadian dollar.

Here are all the details, and 5 possible outcomes for USD/CAD.

Published on Friday at 12:30 GMT.

Indicator Background

The Canadian GDP is released  monthly, unlike most other developed countries which  post GDP on a quarterly basis.  The key indicator provides an excellent indication of the health and direction of the economy. Traders should pay particular attention to  Canadian  GDP  and treat it as a market-mover.

GDP  softened in March, dropping to just 0.2%, compared to 0.5% a month earlier. However, this reading did match the forecast. The markets are expecting another weak release, with the estimate standing at just 0.1%.

Sentiments and levels

US numbers have been relatively strong despite some blips, and the Fed’s continuing tapers to QE  marks a vote of confidence in the economy. Canadian numbers have been lukewarm and weak inflation continues to weigh on the economy. The  Canadian dollar  could soften if GDP and other key numbers do not meet expectations. Thus, the overall sentiment is  bullish on USD/CAD towards this release.

Technical levels, from top to bottom: 1.1124, 1.10, 1.0945, 1.0853, 1.0723, and 1.0660.

5 Scenarios

1. Within expectations:  -0.1% to +0.3%. In such a scenario, USD/CAD is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 0.4% to 0.7%: An unexpected higher reading can send  the pair  below one support line.
3. Well above expectations: Above 0.7%: An  unexpected surge in the reading  would push  USD/CAD downwards, and a second support level might be broken as a result.
4. Below expectations: -0.5% to -0.2%: A  weak reading  could cause the  pair to climb and break one level of resistance.
5. Well below expectations:  Below -0.5%. In this scenario, USD/CAD could break a second resistance level.

For more on the loonie, see the USD/CAD forecast.

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