Robust GDP Report turns Canadian Dollar Positive

The USD CAD is down sharply after a report showed the Canadian GDP grew in the fourth quarter faster than economists forecast.

The USD CAD is down sharply after a report showed the Canadian GDP grew in the fourth quarter faster than economists forecast. The report showed the economy expanded by 5% versus pre-report guesses of 4.2%.

This morning’s better-than-expected GDP report indicates the economy has enough positive momentum to perhaps trigger a more hawkish statement from the Bank of Canada at Tuesday’s policy meeting. This robust report could serve as notice that the economy is expanding at a pace that would warrant an interest rate hike by the BoC sooner than the Federal Reserve.

The GBP USD is under pressure following reports that a poll showed that the minority party may win the upcoming election. Such a move will mark the first time since 1974 that the minority party has gained such power. Investors feel that this drastic change will stall the country’s efforts to shore up the U.K.’s debt issues.

Heightened political pressures along with the poor economy and the Bank of England’s continued easing of monetary policy weighed heavily on the Pound since early in the session when stops were hit below 1.50. Since the early session sell-off, the GBP USD has found support at a .618 retracement level at 1.4854. This successful level has generated some light short-covering, but far from enough to trigger a change in trend.

Demand for higher risk assets because of today’s strong U.S. equity markets is helping to support the USD JPY. Although the range has been tight, the chart formation suggests that the Dollar is poised to breakout to the upside if it can trigger stops above 89.50.

The Euro is feeling downside pressure once again after optimism over a possible deal between the European Union and Greece appears to be waning. A week-end report from the Wall Street Journal citing the possibility that Germany and France would bail-out Greece to the tune of $41 billion failed to generate any strong buying or short-covering. Selling has been relentless at times during the trading session which puts the EUR USD in a position to break through the recent bottom at 1.3443.

Today’s action indicates that investors are getting frustrated with waiting for the deal to be set and with Greece’s inability to make additional budget cuts. The only thing that could turn this market around at this time will be either a concrete resolution to the crisis or a short-covering rally triggered by fresh foreign buying of the Euro.

The weaker Euro is helping to support the USD CHF. Although the trend turned down on the daily chart last week, today’s lack of follow-through to the downside indicates that short-sellers may have jumped the gun in anticipation of an EU/Greece deal. Sellers are once again pressuring the Swiss Franc in anticipation of a lower Euro and another round of Swiss National Bank intervention.

Demand for higher yielding assets is helping to support the AUD USD and NZD USD. Volatility has been high in these two markets this session following mixed reports overnight. Last night it was reported that the Australian manufacturing sector expanded at the fastest pace in two years, but that the current account deficit widened in the fourth quarter. In addition, news that the Chinese Manufacturing Index fell pressured both the Aussie and Kiwi. Better than expected U.S. economic reports triggered a rally in the equity markets which has led to increased demand for higher risk assets. Traders may also be factoring in the possibility of an interest rate hike by the Reserve Bank of Australia at tomorrow’s policy meeting.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

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