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Defying expectations for a slower pace of growth, the Canadian economy accelerated in the second quarter to grow at an annualized rate of 4.5 percent and, in so doing, it retains the title of fastest growing G-7 economy

Sorry Japan, Canada Just Stole the Spotlight

Canada's economy expanded at an annualized rate of 4.5 percent in the second quarter, besting market expectations of a 3.7 percent gain. Before all of the results were in, it looked like Japan with its 4.0 percent growth in the second quarter would hold the distinction of fastest growing G-7 economy. In recent months, the year-over-year GDP growth numbers have crested above 4.0 percent. As the middle chart shows, that is the fastest annual growth Canada has seen in roughly a decade. The faster growth is catching forecasters and financial markets somewhat by surprise. Even the Bank of Canada (BoC), which has been known to overshoot its growth estimates from time-to-time, is forecasting only 2.8 percent GDP growth for 2017 as a whole, according to projections in its July Monetary Policy Report. Growth would have to slow meaningfully in the second half of the year to come in with anything below 3.0 percent.

Canada's households continue to boost the economy, with spending growing at an annualized rate of more than 4.5 percent each of the first two quarters of the year. We were already concerned about high consumer debt levels in Canada, and today's report increases that concern. Consumer spending was so strong in Q2 that the personal savings rate slipped below 5.0 percent in the first half of the year, after having remained above 5.0 percent in 2016.

Business investment, which had been under pressure in 2015 and 2016 due to depressed commodity and oil prices, has rebounded in recent quarters, although admittedly the 1.9 percent growth rate for business investment in the second quarter marks a significant slowdown relative to the 10.5 percent surge in the first three months of the year.

Business inventories ratcheted up another $14 billion after a $10.3 billion increase in the prior quarter. While the quickening demand environment in Canada may justify the stockpiling, we suspect a slower pace of inventory accumulation in the second half may be a drag on GDP growth. After being a drag on overall growth in Q1, net exports boosted growth in the second quarter, adding seven-tenths of a percentage point to the overall top-line growth rate for the period.

Bank of Canada Meeting Next Week Is Live

The BoC lifted its overnight rate to 0.75 percent at its July meeting and has since maintained a tightening bias. Prior to today's report, we would have said that the next hike could come as soon as the October meeting. While that is still our base case scenario, we would be remiss not to acknowledge there is some risk policy-makers could act at their scheduled meeting this coming Wednesday. CPI inflation at 1.2 percent is still near the low end of the target range, meaning they are not compelled to act now.

For the 24 hours to 23:00 GMT, the AUD rose 0.48% against the USD and closed at 0.7943.

LME Copper prices rose 0.6% or $37.0/MT to $6792.0/MT. Aluminium prices rose 2.3% or $47.0/MT to $2113.5/MT.

In the Asian session, at GMT0300, the pair is trading at 0.7951, with the AUD trading 0.1% higher against the USD from yesterday's close, on the back of robust manufacturing report from Australia.

Data revealed that Australia's AiG performance of manufacturing index advanced to a level of 59.8 in August, expanding at its quickest pace since May 2002 and suggesting that manufacturing sector will propel third quarter economic growth in the resource-rich economy. The PMI had recorded a reading of 56.0 in the prior month.

Elsewhere in China, Australia's largest trading partner, the Caixin manufacturing PMI recorded an unexpected rise to a level of 51.6 in August, notching a six-month high level. Markets had envisaged the PMI to drop to a level of 51.0, after registering a level of 51.1 in the previous month.

The pair is expected to find support at 0.7896, and a fall through could take it to the next support level of 0.7840. The pair is expected to find its first resistance at 0.7982, and a rise through could take it to the next resistance level of 0.8012.

Moving ahead, investors will closely monitor the Reserve Bank of Australia's (RBA) interest rate decision, due next week.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the EUR rose 0.14% against the USD and closed at 1.1913, following robust economic data in the Euro-zone.

Data indicated that the Euro-zone's preliminary consumer price index (CPI) climbed more-than-expected by 1.5% on an annual basis in August, hitting its highest since April 2017, suggesting that price pressures in the common currency region are regaining some momentum. In the prior month, the CPI had gained 1.3%, while markets were expecting it to rise by 1.4%. Additionally, the region's unemployment rate remained unchanged at an eight-year low level of 9.1% in July, meeting market consensus.

Separately, Germany's seasonally adjusted unemployment rate remained steady at a record low level of 5.7% in August, in line with market expectations. On the contrary, the nation's retail sales fell more-than-anticipated by 1.2% on a monthly basis in July, stoking fears that private consumption in the Euro-bloc's biggest economy may have lost momentum at the start of the third quarter.

The greenback lost ground against a basket of currencies, after pending home sales in the US unexpectedly dropped 0.8% on a monthly basis in July, confounding market anticipations for a rise of 0.3% and following a revised gain of 1.3% in the previous month. Meanwhile, the nation's initial jobless claims rose to a level of 236.0K in the week ended 26 August 2017, lower than market expectations for a rise to a level of 238.0K. In the previous week, initial jobless claims had recorded a revised level of 235.0K.

Another data indicated that personal spending in the US climbed 0.3% MoM in July, undershooting market expectations for a rise of 0.4%. In the prior month, personal spending had risen by a revised 0.2%. Further, the nation's personal income recorded a more-than-expected rise of 0.4% on a monthly basis in July, while markets anticipated for an advance of 0.3%. In the prior month, personal income had registered a flat reading. Also, the nation's Chicago Fed purchasing managers index remained steady at a level of 58.9 in August, while investors had envisaged the index to ease to a level of 58.5.

In the Asian session, at GMT0300, the pair is trading at 1.1905, with the EUR trading 0.07% lower against the USD from yesterday's close.

The pair is expected to find support at 1.1844, and a fall through could take it to the next support level of 1.1784. The pair is expected to find its first resistance at 1.1944, and a rise through could take it to the next resistance level of 1.1984.

Moving ahead, investors will keep a close watch on the final Markit manufacturing PMI for August across the Euro-zone, slated to release in a few hours. Moreover, traders anxiously awaited the US non-farm payrolls, unemployment rate and average hourly earnings data, all for August, scheduled to release later in the day. Moreover, the nation's construction spending for July, ISM manufacturing PMI as well as final Michigan consumer confidence index, both for August, will also be eyed by traders.

The currency pair is trading above its 20 Hr moving average and showing convergence with its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the GBP rose 0.15% against the USD and closed at 1.2941, following hawkish remarks from the Bank of England's (BoE) monetary policy committee member, Michael Saunders.

Michael Saunders urged for an immediate interest rate hike in order to combat rising inflation and warned a delay could lead to ‘a more abrupt and painful economic slowdown'. Further, he added that risks emerging from Britain's departure from the European Union does not justify holding off raising interest rates at record low levels.

However, gains in the Pound were limited amid heightened concerns over Brexit as the third round of Brexit negotiations concluded with little fruition, while the European Union's (EU) chief negotiator, Michel Barnier, warned that negotiations were lacking sufficient progress.

In the Asian session, at GMT0300, the pair is trading at 1.2945, with the GBP trading a tad higher against the USD from yesterday's close.

The pair is expected to find support at 1.2883, and a fall through could take it to the next support level of 1.2821. The pair is expected to find its first resistance at 1.2977, and a rise through could take it to the next resistance level of 1.3009.

Ahead in the day, traders will focus on Britain's Markit manufacturing PMI for August.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD declined 0.25% against the JPY and closed at 110.06.

In the Asian session, at GMT0300, the pair is trading at 110.05, with the USD trading slightly lower against the JPY from yesterday's close.

Overnight data indicated that Japan's final Nikkei manufacturing PMI rose less than initially estimated to a level of 52.2 in August, while the preliminary figures had indicated an advance to a level of 52.8 and compared to a level of 52.1 in the previous month.

The pair is expected to find support at 109.73, and a fall through could take it to the next support level of 109.41. The pair is expected to find its first resistance at 110.52, and a rise through could take it to the next resistance level of 110.99.

Moving ahead, market participants will look forward to Japan's final GDP numbers for 2Q 2017, slated to release next week.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD declined 0.37% against the CHF and closed at 0.9596.

In the Asian session, at GMT0300, the pair is trading at 0.9597, with the USD trading marginally higher against the CHF from yesterday's close.

The pair is expected to find support at 0.9557, and a fall through could take it to the next support level of 0.9518. The pair is expected to find its first resistance at 0.9658, and a rise through could take it to the next resistance level of 0.9720.

Going forward, Switzerland's retail sales for July and SVME–PMI for August, scheduled to release in a few hours, will garner a lot of market attention.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD declined 1.13% against the CAD and closed at 1.2480.

The Canadian Dollar gained ground, after Canada’s gross domestic product (GDP) advanced 0.3% on a monthly basis in June, surpassing market expectations for an advance of 0.1% and boosting odds of another interest rate hike. In the prior month, the GDP had registered a rise of 0.60%. Meanwhile, the nation’s economy expanded at an annualised 4.5% in the second quarter of 2017, growing at its quickest pace in nearly six years, compared to an advance of 3.7% in the prior quarter.

In the Asian session, at GMT0300, the pair is trading at 1.2457, with the USD trading 0.18% lower against the CAD from yesterday’s close.

The pair is expected to find support at 1.2384, and a fall through could take it to the next support level of 1.2312. The pair is expected to find its first resistance at 1.2596, and a rise through could take it to the next resistance level of 1.2736.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

EURUSD

The EURUSD attempted to push lower yesterday bottomed at 1.1823 but closed higher at 1.1909 and hit 1.1922 earlier today in Asian session. As you can see on my daily chart below, we have a bullish pin bar formation which could signal an end to the bearish correction and resumption of the bullish trend. The bias is bullish in nearest term testing 1.2000 – 1.2070 region. Immediate support is seen around 1.1870. A clear break below that area could lead price to neutral zone in nearest term testing 1.1823 key support. A clear break and daily/weekly close below 1.1823 would signal further bearish correction next week testing 1.1600 region.

GBPUSD

The GBPUSD attempted to push lower yesterday slipped below 1.2870 but whipsawed to the upside and closed higher at 1.2928 and hit 1.2947 earlier today in Asian session. The bias is bullish in nearest term but price is still trapped between 1.2980 – 1.2870 range area and need a clear break from that range area to see clearer direction. A clear break and daily/weekly close above 1.2980 would expose 1.3125 area next week. On the other hand, a clear break and daily/weekly close below 1.2870 would expose 1.2700 area next week. Overall I remain neutral.

USDJPY

The USDJPY attempted to push higher yesterday topped at 110.67 but closed lower at 109.96. The bias is neutral in nearest term but price is still in a bullish phase after formed a valid bullish pin bar on Tuesday with nearest bullish target seen around 111.00 region. Immediate support is seen around 109.85. A clear break below that area could trigger further bearish pressure testing 109.40 but key support remains at 108.70 area. Overall I remain neutral.

USDCHF

The USDCHF failed to continue its bullish momentum yesterday bottomed at 0.9582 and hit 0.9576 earlier today in Asian session. The bias is bearish in nearest term testing 0.9525 but the bullish pin bar formed on Tuesday still provides a valid bullish signal. Immediate resistance is seen around 0.9650. A clear break above that area could lead price to neutral zone in nearest term testing 0.9700 region but key resistance is seen at 0.9765 – 0.9807 region which remains a good place to sell. I prefer to stand aside for now.

A note on lower timeframe confirming price action...

Waiting for lower timeframe confirmation is our main tool to confirm strength within higher timeframe zones, and has really been the key to our trading success. It takes a little time to understand the subtle nuances, however, as each trade is never the same, but once you master the rhythm so to speak, you will be saved from countless unnecessary losing trades. The following is a list of what we look for:

• A break/retest of supply or demand dependent on which way you're trading.
• A trendline break/retest.
• Buying/selling tails ... essentially we look for a cluster of very obvious spikes off of lower timeframe support and resistance levels within the higher timeframe zone.
• Candlestick patterns. We tend to only stick with pin bars and engulfing bars as these have proven to be the most effective.

We typically search for lower-timeframe confirmation between the M15 and H1 timeframes, since most of our higher-timeframe areas begin with the H4. Stops are usually placed 1-3 pips beyond confirming structures.

EUR/USD

Going into the early hours of yesterday’s US segment, we can see that the single currency bottomed around August’s opening level at 1.1830. Soft US data, along with a USDX (H4) resistance at 11960 and daily supply at 11969-11938, helped lift the pair north, consequently ending the day closing beyond the 1.19 handle.

Similar to the USDX daily supply (only inverse), we also saw EUR daily demand brought into play yesterday at 1.1739-1.1823, which, as you can probably see, formed a beautiful buying tail. Also of particular interest is the weekly timeframe; price recently connected with nearby support at 1.1871.

Suggestions: In a nutshell, the structure of this pair can be boiled down to the following points:

H4 trading above 1.19 – shows room to advance up to resistance at 1.1962.

Daily price trading from demand (USDX from supply) – formed buying tail, and shows little resistance on the horizon.

Weekly action trading from support – could possibly see price retest resistance at 1.2044.

Consequent to the above, we’re looking for price to retest 1.19 and hold as support today. Should this come to realization and price follows up with a full, or near-full-bodied candle, the team would consider a long, targeting 1.1962 as an initial take-profit line.

Data points to consider: US employment report at 1.30pm, US ISM manufacturing PMI at 3pm GMT+1.

Levels to watch/live orders:

• Buys: 1.19 region ([waiting for a reasonably sized H4 bullish candle to form – preferably a full, or near-full-bodied candle – is advised] stop loss: ideally beyond the candle’s tail).
• Sells: Flat (stop loss: N/A).

GBP/USD

Across the board, we saw the US dollar selloff from (USDX) H4 resistance at 11960 on Thursday. This, as you can see, helped the (GBP) H4 candles recover beautifully from June’s opening level at 1.2870, with the major settling for the day just ahead of the mid-level resistance at1.2950/supply at 1.2970-1.2953.

Over on the bigger picture, weekly price is seen trading from supply pegged at 1.3120-1.2957, and daily action is seen meandering ahead of a resistance area at 1.3058-1.2979. Also noteworthy, daily price shows room to extend as far down as the support area seen at 1.2818-1.2752, which happens to intersect with a channel support taken from the low 1.2365.

Suggestions: Should H4 price challenge the aforementioned H4 supply today and chalk up a bearish candle (preferably a full, or near-full-bodied candle), a sell from this area would be valid, in our opinion.

Data points to consider: UK Manufacturing PMI at 9.30am. US employment report at 1.30pm, US ISM manufacturing PMI at 3pm GMT+1.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: 1.2970-1.2953 ([waiting for a reasonably sized H4 bearish candle to form – preferably a full, or near-full-bodied candle – is advised] stop loss: ideally beyond the candle’s wick).

AUD/USD

Using a top-down approach this morning, we can see that weekly price remains bolstered by the support area drawn from 0.7849-0.7752. Further buying from this region will likely bring the candles up to resistance pegged at 0.8075. The story on the daily timeframe, however, shows that upside is currently capped by a nearby Quasimodo resistance at 0.7988, followed closely by another Quasimodo resistance at 0.8030.

Bouncing over to the H4 timeframe, recent movement shows the commodity currency surpassed the 0.79 handle – tagged fresh buy orders at 0.7866-0.7882 (support area) – and then advanced (likely helped by gold’s advance) back up to the mid-level resistance at 0.7950 by the day’s end.

Suggestions: With both gold and the Aussie higher timeframe charts showing room to appreciate, we feel 0.7950 will eventually give way today. Technically speaking, a violation of 0.7950 leaves the path north free for price to challenge the daily Quasimodo resistance mentioned above at 0.7988.

With less than 40 pips of room to play with between 0.7950/0.7988, we feel a long above 0.7950 will be somewhat challenging. That is, of course, unless one is able to pin down a long with a small enough stop-loss order to accommodate sufficient risk/reward.

Data points to consider: Caixin manufacturing PMI at 2.45am. US employment report at 1.30pm, US ISM manufacturing PMI at 3pm GMT+1.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: Flat (stop loss: N/A).

USD/JPY

The USD/JPY slid below August’s opening level at 110.30 and attacked the 110 handle on Thursday, after topping around the 110.50 mark on Thursday. The H4 candles have yet to register anything noteworthy at 110, which could imply price may punch lower and challenge the nearby support at 109.83.

On the daily timeframe, price recently came within a few pips of testing resistance at 110.76 and sold off. In the event that the bears remain in the driving seat here, the next downside target can be seen at a trendline support extended from the low 100.08. On the other side of the coin, however, weekly price is seen trading north from a demand base coming in at 108.13-108.95.

Suggestions: To our way of seeing things, neither a long nor short seems attractive at the moment. Not only because of the conflicting signals coming from the higher timeframes, but also due to the somewhat restricted structure being seen on the H4 timeframe.

Data points to consider: US employment report at 1.30pm, US ISM manufacturing PMI at 3pm GMT+1.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: Flat (stop loss: N/A).

USD/CAD

Following a strong Canadian GDP print, the USD/CAD plummeted over 100 pips lower. The 1.26 handle, the H4 mid-level support at 1.2550 and eventually August’s opening level at 1.2497 were all engulfed, leaving price free to challenge mid-level support 1.2450. Over on oil’s H4 chart, nevertheless, crude is beginning to print bearish candles from a minor H4 resistance at 47.40.

The recent move lower has placed considerable pressure on the weekly demand at 1.2433-1.2569, which fuses nicely with a trendline support etched from the low 0.9633. Traders may have also noticed that daily price is now seen trading just ahead of a demand base coming in at 1.2303-1.2423.

Suggestions: The top edge of daily demand at 1.2423 looks interesting for a long, despite this area being located beneath the aforementioned weekly support zone. Be that as it may, the underlying trend on this pair remains bearish, and buying right now would almost feel like trying to ‘catch a falling knife’. For that reason, we’re going to remain on the sidelines at least until the US job’s report is out of the way, and then look to reassess structure.

Data points to consider: US employment report at 1.30pm, US ISM manufacturing PMI at 3pm GMT+1.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: Flat (stop loss: N/A).

USD/CHF

In recent trading H4 price rallied into both June/August’s opening levels at 0.9680/0.9672, which did a superb job in holding the unit lower. The downside move from these levels was aided by a rally on the EUR/USD and a hefty push lower from USDX (H4) resistance at 11960. As a result of this, the day concluded with price breaching the 0.96 handle and testing July’s opening line at 0.9580.

Another key thing to note regarding yesterday’s selloff is the daily supply at 0.9699-0.9641, and corresponding daily supply seen on the USDX at 11969-11938. Also worth mentioning on the daily chart is that the next downside target can be seen at 0.9546: a nearby support level that converges with a channel support etched from the low 0.9438. Looking up to the weekly timeframe, nonetheless, price is currently lurking mid-range between a support area at 0.9443-0.9515 and a trendline resistance extended from the low 0.9257.

Suggestions: Back on the H4 timeframe, we can see that beyond July’s opening level at 0.9580 there’s room seen for the Swissy to trade as far down as the 0.95 handle (although daily price shows that support at 0.9546 could hinder this move). Above 0.96, nevertheless, a move back up to June/August’s opening levels is also a possibility according to H4 structure. Despite this, one has to take into account that the underside of daily supply positioned at 0.9641 may come into play before the monthly levels are reached!

For that reason, if you intend on trading beyond either 0.96 or 0.9580 today, do remain cognizant of the daily structures highlighted above!

Data points to consider: US employment report at 1.30pm, US ISM manufacturing PMI at 3pm GMT+1.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: Flat (stop loss: N/A).

DOW 30

Despite finding a strong pocket of offers around August’s opening level at 21913 on Wednesday, US equities managed to close above this monthly line during yesterday’s segment and clock a high of 21987. The latest move north was likely due to weekly bulls recently making a stand from demand at 21462-21645. Providing that weekly action remains bid from here, the next port of call will likely be fresh record highs.

Although H4 action looks reasonably clear up to resistance at 22062 (also denotes a Quasimodo resistance left shoulder marked by the black arrow), daily price is seen trading from supply at 22076-21929. While this supply boasts strong momentum, let’s not forget that it has formed within an incredibly dominant uptrend. Therefore, we feel this area will eventually give way.

Our suggestions: Given the current daily supply in play, trading this market to the upside is challenging from a technical perspective. Granted, we could assume that the area will engulf due to the uptrend, but this is still extremely risky and not something we’d be willing to base a trade on. As such, we feel waiting on the sidelines, at least until after the US job’s report, may be the better route to take.

Data points to consider: US employment report at 1.30pm, US ISM manufacturing PMI at 3pm GMT+1.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: Flat (stop loss: N/A).

GOLD

Given the broad-based dollar selloff against the majority of its major trading peers yesterday, the price of gold increased in value. At this stage, the odds of weekly price continuing to advance north to shake hands with resistance at 1337.3 is quite high, in our opinion. Adding weight to this theory, we can see that price recently rebounded from a daily support coming in at 1308.4.

Still, before we’re confident of gold’s direction, we’d need to see Tuesday’s high at 1325.9 taken out on the H4 timeframe. This, as far as we can see, is the last major obstacle stopping price from gravitating north.

Our suggestions: A H4 close above Tuesday’s high, followed up with a retest and a H4 bullish candle in the shape of either a full, or near-full-bodied bullish candle would, in our view, be enough to validate a long, targeting the weekly resistance mentioned above at 1337.3.

Levels to watch/live orders:

• Buys: Watch for H4 price to engulf 1325.9 and then look to trade any retest seen thereafter ([waiting for a reasonably sized H4 bull candle to form following the retest is advised] stop loss: ideally beyond the candle’s tail).
• Sells: Flat (stop loss: N/A).

Currency pair EUR/USD

Important numbers are expected to be released today in the US. The Non Farm Payroll (NFP), average hourly earnings, and unemployment rate will be announced and they typically impact the US Dollar and other financial instruments. The reaction of the USD to the news remains to be seen but from an Elliott wave perspective, price has probably completed a wave 5 (purple/green) within wave 3 (blue).

The EUR/USD strong bearish momentum did not break the support trend line (blue), which makes a bullish extension still possible. However, price needs to break above the previous top of 1.2070 to make the scenario more likely. For the moment, an ABC (red) correction is more probable. The Fibonacci levels of wave B (red) could in that case act as resistance levels for a potential bearish turn.

The EUR/USD is probably building an ABC (purple) within a B (red). The invalidation level of the bearish correction is a break above the top at 1.2070.

Currency pair USD/JPY

The USD/JPY broke below the bullish channel (dotted blue). The bearish bounce could indicate that wave C (orange) has been completed but price will need to break below the support zone (green) to confirm this. Otherwise a larger bullish correction towards the 38.2% and resistance zone (red) could occur.

The USD/JPY is most likely building a wave 12 or AB (purple).

Currency pair GBP/USD

The GBP/USD made a deeper retracement and reached the 61.8% Fibonacci level which acted a support. The orange lines indicate a potential resistance zone.

The GBP/USD bullish break above resistance (dotted red) is indicating the potential start of wave C purple).