USD/CAD: Trading the Canadian GDP May 2013

Gross Domestic Product (GDP) is a measurement of the production and growth of the economy. Analysts consider GDP one the most important indicators of economic activity. 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 and provides an excellent indication of the health and direction of the economy. Traders should pay particular attention to this key economic indicator and treat it as a market-mover.

The Canadian dollar got a boost last month after GDP posted a 0.3% gain, beating the estimate of 0.2%. The estimate for the May reading stands at 0.1%. Will GDP again beat the forecast?

Sentiments and levels

The US dollar has recently shown broad strength against the major currencies, including the loonie. Canada’s inflation and retail sales numbers missed their estimates, underscoring weak activity in the Canadian economy. At the same time, the US economy is showing some improvement, and this is positive for Canada, whose economy is heavily dependent on the US. Thus, the overall sentiment is neutral on USD/CAD towards this release.

Technical levels, from top to bottom: 1.0652, 1.0523, 1.0446, 1.0340, 1.0285 and 1.0125.

5 Scenarios

1. Within expectations: -0.2% to 0.4%. 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 well 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: -0.6% to -0.3%:  A lower GDP figure than predicted could cause the pair to climb and break one level of resistance.
5. Well below expectations: Below -0.4%. In this scenario, USD/CAD could rise and could break a second resistance level.

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

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