Why should I trade the Canadian GDP report?
A gross domestic product (GDP) report is simply an economy’s report card. It considers the country’s consumer spending, business investment, government spending, and net exports.
Traders are particularly interested in Canada’s monthly GDP numbers because they want to see the impact of the economy’s recent challenges. Remember that the commodity boom has helped lift the Loonie’s value but has crowded out manufacturing jobs in the country.
With the boom dying down, workers are losing jobs and buying power. This isn’t making retailers happy especially since they also dealing with increased competition and extreme weather. Of course, it also doesn’t help that strong US data, the Fed’s tapering, the BOC’s bearish remarks, and breaks above USD/CAD’s psychological levels have further dragged the Loonie’s price.
USD/CAD’s previous reactions
Better than expected: 0.3% vs. 0.2%
Back in December USD/CAD initially dropped by a whopping 10 pips before it reversed its move within the hour. This isn’t surprising considering it was during the holiday season and the pair was also supported by a psychological handle.
As expected 0.2% vs. 0.2%
Just last month USD/CAD broke out of a tight intraday range at the report’s release. As in December, the reaction didn’t last long and was quickly reversed within the hour. Heck, it even fell by 125 pips during the US session!
Worse than expected -0.5% vs. -0.4%
The last time the report came below expectations was in August. Back then the pair was also trading on a tight range and broke out at the report’s release. I’ll give you three guesses on what happens next. If you answered complete reversal, then here’s a virtual high five for ya!
Tips and Tricks
1. Don’t expect inverse correlation plays. Just because Canada’s GDP came in strong doesn’t mean that the Loonie will strengthen. Of course, it could also depend on how far the actual reading is to the investors’ expectations.
2. Pay attention to USD/CAD’s inflection points. As we can see from the charts above, USD/CAD tends to completely reverse its move within the hour of the release. Pay special attention to major psychological levels and intraday support and resistance areas. You might want to consider fading the initial move or taking profits at the potential inflection points.