USDCAD Range 1.3120-1.3220        

Canadian Q2 GDP posted a negative 0.5%.  It is the second consecutive negative quarter, so for many, Canada is in a technical recession. While it’s not good news, it wasn’t unexpected. What was unexpected was that glimmer of hope, a 0.5% rise in real GDP for June that like the first buds in spring, says growth may be on the way.

USDCAD traders agreed, sort of. The initial reaction saw the currency pair collapse from 1.3210 to 1.3120 in the blink of an eye. It has subsequently bounced, but in a disinterested way as traders wrestle with concerns over China and whether the oil rally is sustainable. Today’s data has also managed to whet the appetite for the prospect of a stronger than expected Canadian employment report.

Overnight, FX markets were startled by news that both China PMI releases (NBS and Caixin) were below 50, renewing concerns of a deeper economic slowdown. Then, FX markets nearly soiled themselves when the weak PMI data was followed by news from the Peoples Bank of China (PBoC) that effective October 15, banks would be required to hold 20% reserve on FX forwards. (no interest would be paid). Taken together, the news was seen as further evidence of China’s economic woes.

Meanwhile, in Australia, the RBA left rates and the statement unchanged. London came back from a three-day weekend, looked at the weak global equity markets and the China stories then decided that cutting risk was an appropriate strategy. EURUSD is also vulnerable to doveish speculation ahead of Thursday’s ECB meeting.

Today’s ISM manufacturing report (forecast 52.6) may give the US dollar a boost if it is higher than expected.

Technical Outlook

The intraday technicals are bearish while trading below 1.3230 risking and looking for a test of 1.3080 which represents the rising trendline from the July BoC rate cut.  A move below 1.3080 warns of a deeper setback to 1.2950-1.3000. For today, USDCAD support is at 1.3120 and 1.3080.  Resistance is at 1.3180 and 1.3230

Today’s Range 1.3250-1.3350

Chart: USDCAD 4 hour chart with uptrend support noted