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Canada's Q2 GDP Improved; USD/CAD Reaction

Canada's GDP grew 0.3% in June on the month, following an upwardly revised 0.5% in May. Forecasts called for a reading around 0.2%, so the 0.3% is in-line with rosier forecasts.

In the June quarter (Q2), the economy grew 0.8%, improving from a 0.2% increase in Q1. On the year, the Q2 GDP growth can be annualized to roughly 3.1% (0.8% x 4).

(source: Statcan)

The gains were broad-based, but the main component that lifted the economy in Q2 was the household final consumption expenditure. This shows growing domestic demand which is needed to keep economic growth sustainable.

Today's Canadian GDP data is impressive. Even though it is within the range of forecasts, it should help keep the CAD strong.

USD/CAD Reaction:
When we look at the USD/CAD we can see that the loonie strengthened this week. USD/CAD fell sharply from just under 1.10 to 1.0828. It has then consolidated roughly between 1.0870 and 1.0830. The GDP data is pushing the USD/CAD to test the consolidation low. Price looks poised to break the support, and if it does, we anticipate a dip toward the 1.0795-1.08 pivot area. Below that, the 1.0710-1.0725 lows from the mid-June consolidation might provide support.

USD/CAD 4H Chart

If price breaks above 1.0870, we can take the range width of 40 pips (1.0870-1.0830 = 40) and projected above, which brings a target of 1.0910. We should indeed look for sellers in the 1.09-1.0925 area. A rally to this area will face a previous price top support, and the 100-, and 50-period SMA in the 4H chart.A break above 1.0950, accompanied by the 4H RSI pushing above 60, should shelve the bearish outlook and re-introduce the bullish one we have seen since early mid-July.