A Growing Canadian Economy Will Confirm Bearish USDCAD Technical Outlook

[DailyFx]

Fundamental Outlook
The Canadian economy is expected to have grown 0.2% in July which is the second month of positive growth. The Canadian economy has proven to be resilient despite the headwinds from the U.S. downturn and the credit crisis, and may avoid a recession. July saw employment rebound gaining 15,200 jobs as the labor market was remained strong as elevated commodity prices were still generating growth. The month also saw retail sales grow 0.1% and wholesale sales grew 2.3%, signaling that retailers remain optimistic. However, the backward looking indicator will not reflect the recent drop in commodity prices. Additionally, demand for exports has remained soft as the U.S. troubles continue. Nevertheless, a second quarter of positive growth will ease recession fears and lend “loonie support which would confirm the bearish technically outlook for the USDCAD. Therefore, strong growth could be a signal for a short USDCAD trade.



Technical Outlook




The USDCAD bounce from 1.03 may be a small 4th wave within the impulsive drop from 1.0827. Tracing out this 4th and then a 5th wave would confirm my longer term bearish stance. Expect resistance near 1.05 (38.2% Fibo is at 1.0493 and former 4th wave is at 1.0519) if needed.


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To discuss this report contact John Rivera, Currency Analyst: jrivera@fxcm.com