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Canada Q2 GDP rises on exports and household spending

The Canadian economy surged in Q2, smashing all market expectations, and recorded its best 12-month run in over a decade, securing G7 strongest performer this year.

Canada's GDP rose at a +4.5% annualized rate in Q2, surpassing market expectations for a +3.7% increase.

Both exports and household spending were the main contributors toward the surprise performance.

The Q2 result likely cements the likelihood of at least one more rate increase from the Bank of Canada (BoC) in 2017. Governor Poloz in July raised its benchmark interest rate by +25 bps to +0.75%.

Fed's Inflation Conundrum Continues

The Fed's inflation conundrum shows no signs of letting up in today's U.S personal-income report.

Today's data shows that the Fed's preferred measure of inflation, the price index for personal consumption expenditures, was up +0.1% in July m/m. The price index rose +1.4% in July y/y, matching the y/y index change for prices ex-food and energy.

Note: This July price reading marked the lowest level in nearly two-years - in February, the annual inflation rate was +2.2%, and while core prices were up +1.9% y/y.

Loonie jumped some 90 pips against the US dollar after Canadian GDP data showed better than expected results. Monthly GDP figure showed rise by 0.3% in June vs forecasted 0.1% increase while annualized GDP rose by 4.5% in Q2, beating forecast/Q1 result at 3.7%. Canadian dollar pared some of recent strong losses vs dollar on rally to 1.2560 zone so far, as USDCAD pair rose by 0.87% on Wednesday and extended gains today to fresh high at 1.2662 (the highest since 18 Aug). Fresh boost that Canadian dollar received from GDP data would spark further gains and stronger retracement of USDCAD's 1.2440/1.2662 recovery leg. Fresh post data acceleration took out initial support at 1.2577 (Fibo 38.2%), eyeing next supports at 1.2544 (10SMA / 4-hr cloud base) and 1.2525 (Fibo 61.8% of 1.2440/1.2662). Daily MA's are turning to full bearish setup, with negative momentum studies and overall action weighed by thick falling daily cloud, being supportive for further easing of USDCAD pair. Solid resistance lies at 1.2616, provided by 20SMA which limited double attempts above it (today/Wed) and maintains downside pressure.

Res: 1.2581; 1.2616; 1.2636; 1.2662
Sup: 1.2544; 1.2525; 1.2500; 1.2443

Sterling has moved sharply lower, falling towards the 1.2860 level, after pound buyers failed to find momentum above the 1.2920 area, which represents the GBPUSD pairs 100-day moving average.

Price-action has now fallen below the 200-hour moving average, at 1.2872, with the GBPUSD pair now risking further intraday losses, once below the weekly pivot point, located at the 1.2856 level.

The GBPUSD is now strongly bearish on an intraday basis, with price now trading below all relevant short-term moving averages.

Key intraday technical support is found at 1.2856, 1.2832 and the 1.2773 level.

To the upside, intraday technical resistance is found at 1.2873, 1.2890, with the GBPUSD daily pivot point, at 1.2913. The 100-day moving average now becomes critical resistance, at 1.2920.

The EURUSD pair has fallen to an intraday low of 1.1844, after reports surfaced that a number of European Central Bank policymakers are growing increasingly concerned about the recent strength on the euro currency.

During the European session, the EURUSD pair advanced towards the 1.1905 level, but soon found strong intraday resistance from the euro's monthly time-frame 50 period moving average.

The EURUSD pair now trades below both daily and weekly pivot points, with price now risking further losses towards the 200-week moving average, located at 1.1762.

Key technical support below the 1.1865 level is found at, the 21st August price high, at 1.1829, and the H4 time frame, 100-period moving average, at 1.1812.

To the upside, key intraday EURUSD resistance is found at the 1.1865 and 1.1905 level, with the daily pivot point located at the 1.1920 level.

The CAC index has recorded considerable gains in the Thursday session. Currently, the index is at 5,060.30, up 0.75% on the day. On the release front, French Preliminary CPI rebounded in August, posting a gain of 0.5%. This matched the estimate, and was a sharp improvement on the July reading of -0.4%. Euro zone CPI Flash Estimate accelerated to 1.5%, edging above the forecast of 1.4%. On Friday, the US releases Nonfarm Employment Change, with the markets braced for a drop to 180 thousand.

It's been a busy week for European stock markets, which have been responding to tensions in the Korean peninsula. The CAC lost ground on Tuesday, after North Korea fired a ballistic missile which flew over northern Japan before crashing into the ocean. Japan and the US sharply condemned the missile launch, with President Trump saying that "all options remain on the table". However, investors have put the incident behind them, and stronger risk appetite has pushed the CAC higher. There was positive news out of the US on Wednesday, as Preliminary GDP (second estimate) for the second quarter was revised to 3.0%, a marked improvement from the first estimate of 2.6%. Consumer confidence and spending remain strong and helped contribute to the strong GDP report, as the economy posted its strongest gain since the first quarter of 2015. However, solid consumer spending has failed to boost inflation, which continues to hover at low levels. The lack of inflation could hamper the Federal Reserve's plans to raise interest rates, with the likelihood of a rate hike in December standing at just 35%.

The euro continues to gain ground against the US dollar. The currency has soared 12.0% since April 1, and on Tuesday, the euro pushed above the 1.20 level for the first time since January 2017. The euro has benefited from stronger growth in the eurozone in 2017, led by robust growth in Germany. However, the euro's streak has weighed on the shares of automobile makers and other exporters, as a stronger euro has made exports more expensive. Investors are anticipating that the ECB will provide some guidance on plans regarding its asset purchase program (QE), which is scheduled to terminate in December. The ECB is widely expected to taper its QE program early next year, but so far has been mum about its plans. Analysts expect the ECB to address its stimulus package at the next policy meeting on September 7.

The DAX index has posted gains in the Thursday session. The DAX is currently trading at 12,073.00, up 0.59% on the day. On the release front, German Retail Sales was unexpectedly weak, declining 1.2%. This was well short of the forecast of -0.5%. German Unemployment Change came in at -5 thousand, beating the estimate of -6 thousand. Euro zone CPI Flash Estimate accelerated to 1.5%, edging above the forecast of 1.4%. As well, the euro zone unemployment rate remained unchanged at 9.1%. On Friday, the US releases Nonfarm Employment Change, which is expected to slow to 180 thousand.

US GDP sparkled on Wednesday, helping restore investor risk appetite, which took a hit after tensions rose between North Korea and the US. Preliminary GDP (second estimate) for the second quarter was revised to 3.0%, a marked improvement from the first estimate of 2.6%. Consumer confidence and spending remain strong and helped contribute to the strong GDP report, as the economy posted its strongest gain since the first quarter of 2015. However, solid consumer spending has failed to boost inflation, which continues to hover at low levels. The lack of inflation could hamper the Federal Reserve's plans to raise interest rates, with the likelihood of a rate hike in December standing at just 35%. Nonfarm Payrolls report will be released on Friday, and if this indicator also beats the forecast, it would be a strong signal that the economic momentum has continued into the third quarter.

The euro has enjoyed a strong run against in the dollar in recent months, jumping 12.0% since April 1. On Tuesday, the currency pushed above the 1.20 level for the first time since January 2015. The euro has benefited from stronger growth in the eurozone in 2017, led by robust growth in Germany. As well, investors are anticipating that the ECB will provide some guidance on plans regarding its asset purchase program (QE), which is scheduled to terminate in December. The ECB is widely expected to taper its QE program early next year, but so far has been mum about its plans. ECB President Mario Draghi opted not to discuss monetary policy at last week's meeting of central bankers at Jackson Hole, which has increased speculation that the issue will be addressed at the bank's policy meeting on September 7.

Daily Pivots: (S1) 109.69; (P) 110.06; (R1) 110.59; More...

No change in USD/JPY's bearish outlook as 110.94 remains intact. Deeper decline is still expected. On the downside, below 109.53 minor support will turn bias to the downside for 108.12 support first. Firm break of 108.12 support will resume the whole corrective decline from 118.65. In that case, USD/JPY will target 61.8% retracement of 98.97 to 118.65 at 106.48. Nonetheless, considering bullish convergence condition in 4 hour MACD, break of 110.94 will indicate near term reversal and bring stronger rebound back towards 114.49 resistance.

In the bigger picture, the corrective structure of the fall from 118.65 suggests that rise from 98.97 is not completed yet. Break of 118.65 will target a test on 125.85 high. At this point, it's uncertain whether rise from 98.97 is resuming the long term up trend from 75.56, or it's a leg in the consolidation from 125.85. Hence, we'll be cautious on topping as it approaches 125.85. If fall from 118.65 extends lower, downside should be contained by 61.8% retracement of 98.97 to 118.65 at 106.48 and bring rebound.

Daily Pivots: (S1) 0.9567; (P) 0.9606; (R1) 0.9674; More....

Considering the USD/CHF is close to to 0.9443 key support, consolidation from 0.9427 might extend further. But still, break of 0.9772 resistance is needed to confirm near term reversal. Otherwise, outlook stays bearish for another decline. Below 0.9537 minor support will turn bias back to the downside for retesting 0.9427 first. Break of 0.9427 will resume whole decline from 1.3042.

In the bigger picture, current development suggests that 0.9443 key support (2016 low) could be taken out firmly as down trend form 1.0342 extends. There are various interpretation of the price actions. But in any case, medium term outlook will stay bearish as long as 0.9772 resistance holds. Current down trend could extend to 38.2% retracement of 0.7065 (2011 low) to 1.0342 (2016 high) at 0.9090.

Daily Pivots: (S1) 1.2888; (P) 1.2912; (R1) 1.2947; More...

While consolidation from 1.2773 is still in progress, there is no change in the bearish outlook in GBP/USD. We're favoring the case that correction from 1.1946 is completed at 1.3267. Below 1.2773 will target 1.2588 key near term support first. Decisive break of 1.2588 will confirm our view and target a test on 1.1946 low. Though, break of 1.3030 will dampen this bearish view and turn bias back to the upside for retesting 1.3267.

In the bigger picture, overall, price actions from 1.1946 medium term low are seen as a corrective pattern. While further rise cannot be ruled out, larger outlook remains bearish as long as 1.3444 key resistance holds. Down trend from 1.7190 (2014 high) is expected to resume later after the correction completes. And break of 1.2588 will indicate that such down trend is resuming.

Daily Pivots: (S1) 1.1847; (P) 1.1915 (R1) 1.1950; More...

EUR/USD's pull back from 1.2069 extends to as low as 1.1822 so far today but it's staying well above 1.1661 support. That is, near term outlook remains bullish as further rise is still expected. Above 1.1928 minor resistance will turn intraday bias back to the upside for retesting 1.2069 high first. Decisive break there will resume whole up trend from 1.0339. This will remain the preferred case as long as 1.1661 holds. However, firm break of 1.1661 will confirm short term topping and bring deeper pull back.

In the bigger picture, an important bottom was formed at 1.0339 on bullish convergence condition in weekly MACD. Sustained trading above 55 month EMA (now at 1.1768) will pave the way to key fibonacci level at 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516. While rise from 1.0339 is strong, there is no confirmation that it's developing into a long term up trend yet. Hence, we'll be cautious on strong resistance from 1.2516 to limit upside. For now, medium term outlook will remain bullish as long as 1.1295 support holds, in case of pull back.