To end the week, we take a quick look at a 4 hourly level in the Loonie.

We haven't featured USD/CAD on the blog for a while, so lets take a look at this major level on the 4 hourly that jumps out at us and put the pair in play.

USD/CAD 4 Hourly:

As you can see, the Loonie has shot back up to test resistance at swing highs from a month ago. Just look at how hard and fast price rejected out of the level that last time!

Is something similar on the cards again this time around?

Canadian real GDP grew 2.6% (quarter-on-quarter, at an annual rate) in the fourth quarter. With the year's data now in hand, Statistics Canada estimates that the Canadian economy expanded by 1.4% in 2016. In nominal terms, fourth quarter growth was 7.0% (resulting in an expansion of 2.0% over 2016 as a whole).

Leading overall growth was net trade, with imports pulling back 13.5%, as an imported oil production module fell out of the data. Exports recorded a modest gain (+1.3%), continuing their momentum from the previous quarter.

On the domestic front, it was all about the consumer, as household spending rose 2.6%, supported by a healthy bounce-back in durable goods spending (+8.1%) after two quarters of contraction. Residential structure investment was also strong, up 4.8% on gains in new construction and renovations.

It was a different story for business investment. Machinery and equipment investment disappointed expectations, falling 10.3% on a pullback in the industrial machinery and equipment subcategory. Non-residential structures investment fell 21.7% as the one-off gains in the third quarter were reversed.

Monthly GDP for December came in at a healthy clip, up 0.3% month-on-month. The goods-producing side of the economy was up 0.5% as a return to seasonal weather helped the utilities sector, and construction activity remained healthy for a second month in a row. On the service side of the economy (+0.2%), weak retail trade figures (-1.0%) were offset by solid gains among wholesalers (+1.2%), professional services (+0.5%), and others as only 2 of the 15 major industries declined.

Key Implications

There are worse ways to end a year. Canadians opened their wallets both at stores and construction offices, delivering a solid fourth quarter economic performance. That said, the fly in the ointment continues to be business investment. While some of the pullback in this sector is related to the installation of a sizeable module for the Hebron oil project in the previous quarter, other areas of business investment disappointed, with continued weakness in machinery and equipment investment, as well as intellectual property products (which includes mineral exploration).

Cautious optimism remains warranted. The solid December monthly GDP figure points to good momentum heading into 2017, while rises in Canadian rig counts suggest that investment in the oil and gas sector may be starting to bottom out. All told, despite undiminished external risks to the outlook, we continue to expect a healthier pace of growth in 2017 and 2018.

Despite today's GDP report coming in ahead of their expectations, it is likely to have little impact on the Bank of Canada's interest rate path. As emphasized in yesterday's communique (see our commentary), underlying inflationary pressures are weak, reflecting still sizeable slack in the Canadian economy that, in our view, will take some time to be absorbed. This means that even with solid growth numbers, significant upward pressure on inflation is not likely to materialize. At the same time, the current levels of the Canadian dollar and longer-term borrowing rates are not helpful. All of these factors point to a Bank that is likely to remain on hold for some time to come.

• The Q4 increase was greater than the 2.0% expected going into the report and followed an upwardly revised 3.8% increase in Q3 (previously reported as 3.5%).
• December GDP rose a solid 0.3% that was in line with expectations though it followed an upwardly revised 0.5% increase in November (0.4% previously).

Activity in the fourth quarter received a significant boost from consumer spending rising 2.6% with a solid increase in the durables component reflecting auto sales being at record highs. Spending in the quarter was helped by wages and salaries rising 5.6%. This income boost was also likely a factor sending residential investment up a strong 4.8%. Government spending was up 2.1% which reversed the 1.9% decline in Q3. A main offset to these increases was a 17.4% plummet in non-residential investment that occurred despite indications of profits rising 28.8%. The modest increase in capital expenditures in 2017 reported early this week provided little evidence these profits are being used to finance any future investment. As expected, net exports were a sizeable 5.2 ppt. add to Q4 GDP growth though this largely reflected a 13.5% plummet in imports. Exports rose a modest 1.3%. The quarter saw a sizeable drawdown in inventories that subtracted 2.8 ppt. from growth.

Our Take:

The Q4 growth rate implies a strengthening pace of activity after the wide swings in the second and third quarters which saw an average increase of 1.3%. As well the Q4 growth rate surpassed the 1.5% increase that the Bank of Canada projected in its January forecast. The central bank acknowledged in Wednesday's policy statement the likelihood of Q4 growth coming in stronger than expected though maintained the economy was performing generally in line with their expectations of sustained above-potential growth. The composition of quarterly growth and the monthly detail both augur well for above average growth continuing in Q1. As long as this growth profile is confirmed in the data over the near term, the central bank is expected to maintain the current overnight rate of 0.50%. Our forecast does assume that the attendant absorption of economic slack will eventually return the Bank of Canada to tightening mode though not until the second quarter of next year. Also contributing to the delay in tightening in the near term are the downside risks to growth should the Trump Administration opt for protectionist trade measures. This factor was likely a main element of the Bank of Canada reference to "significant uncertainties" in Wednesday's policy statement that was a factor in leaving the overnight rate unchanged.

Daily Pivots: (S1) 1.2246; (P) 1.2325; (R1) 1.2371; More...

GBP/USD's fall continues today and intraday bias remains on the downside for 1.1946/86 support zone. The consolidation pattern from 1.1946 has possibly completed at 1.2705 too. Break of 1.1946 will confirm our bearish view and resume the larger down trend. Nonetheless, on the upside, above 1.2478 minor resistance will delay the bearish case and turn bias neutral first.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term bottoming yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

Daily Pivots: (S1) 1.0550; (P) 1.0590 (R1) 1.0616; More.....

EUR/USD is still bounded in range of 1.0493/0678 and intraday bias remains neutral first. With 1.0678 minor resistance intact, deeper decline is still expected. We're viewing fall from 1.0828 as resuming the larger down trend. Below 1.0493 will target 1.0339 low first. Break will confirm our bearish view and target parity. However, break of 1.0678 will dampen our view and turn focus back to 1.0828 resistance instead.

In the bigger picture, whole down trend from 1.6039 (2008 high) is in progress. Such down trend is expected to extend to 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. On the upside, break of 1.1298 resistance is needed to confirm medium term bottoming. Otherwise, outlook will stay bearish in case of rebound.

Daily Pivots: (S1) 1.0051; (P) 1.0089; (R1) 1.0127; More.....

USD/CHF is staying below 1.0140 resistance and intraday bias remains neutral at this point. With 0.9966 support intact, further rise is expected. Above 1.0140 will turn bias to the upside and target a test on 1.0342 resistance. Based on neutral medium term outlook, we'd be cautious on topping at around 1.0342. Meanwhile, break of 0.9966 will indicate completion of the rebound from 0.9860. And intraday bias will be turned back to the downside for 0.9860.

In the bigger picture, prior rejection from 1.0327 resistance argues that USD/CHF is staying in a medium term sideway pattern. In any case, decisive break of 1.0342 resistance is needed to confirm underlying strength. Otherwise, we'll stay neutral in the pair first. In case of another fall, we'd expect strong support from 0.9443/9548 support zone. Meanwhile firm break of 1.0342 will target 38.2% retracement of 1.8305 to 0.7065 at 1.1359.

Daily Pivots: (S1) 112.93; (P) 113.48; (R1) 114.28; More...

USD/JPY is still staying inside range of 111.58/114.94 and intraday bias remains neutral. Price actions from 118.65 are viewed as a corrective move. Firm break of 114.94 resistance will indicate that it's completed, on a double bottom pattern (111.58, 111.68). In such case, intraday bias will be turned to the upside for retesting 118.65. Also, the whole rise from 98.97 is likely resuming. On the downside, in case of another fall, we'd still expect strong support from 38.2% retracement of 98.97 to 118.65 at 111.13 to contain downside and bring rebound.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. The impulsive structure of the rise from 98.97 suggests that the correction is completed and larger up trend is resuming. Decisive break of 125.85 will confirm and target 61.8% projection of 75.56 to 125.85 from 98.97 at 130.04 and then 135.20 long term resistance. Rejection from 125.85 and below will extend the consolidation with another falling leg before up trend resumption.

USD/CAD has moved higher throughout the week and this trend continues in the Thursday session. Early in the North American session, the pair is trading at 1.3350. On the release front, Canadian GDP edged lower to 0.3%, matching the estimate. US unemployment claims sparkled, falling to 223 thousand, the fewest since March 1973. On Friday, the US releases ISM Non-Manufacturing PMI, and the markets will be listening closely as Janet Yellen and three other FOMC members deliver speeches.

There were no surprises from the Bank of Canada, which held rates at 0.50%, where they have been pegged since July 2015. However, the rate statement expressed concern, stating that the economy faces "significant uncertainties", including a lack of clarity over Donald Trump's economic agenda. Trump has called for the NAFTA trade agreement to be scrapped, although he has since backtracked and said that he only wanted to "tweak" the provisions that affect Canada-US trade. Still, Trump's protectionist leanings could hurt the Canadian economy, which sends 80% of its exports to its southern border. Even if NAFTA is left alone, the US could slap import duties on Canadian products, which would have negative ramifications for the Canadian economy. Meanwhile, the Canadian dollar is struggling, dropping 1.9% this week. The currency is close to an 8-week low, and USD/CAD could push past the 1.34 level this week.

There was plenty of anticipation in the air ahead of President Trump's speech to Congress. In the end, however, the speech was short on specifics and the markets haven't shown much reaction in the Wednesday session. Trump promised "massive" tax relief for the middle class as well as corporate tax cuts. However, he failed to provide details or even timelines on tax reform or infrastructure spending, two themes which he has discussed since the election campaign. Trump stated that he will ask Congress to approve legislation for $1 trillion in infrastructure spending, "financed through both public and private capital". Analysts noted that although Trump touched on the protectionist theme, such as the trade imbalance with China, his tone was less belligerent than we've seen in the past.

When will the Fed press the rate trigger? That should occur in the first half of the year, but the key question is whether the Fed makes a move at the next policy meeting on March 15. On Tuesday, FOMC members William Dudley and John Williams both hinted at an imminent hike by the Fed, which has raised the odds of a March hike at 66%, according to Reuters. Dudley said the case for a hike is compelling, while Williams noted that a rate increase will be up for "serious consideration" at the March policy meeting. The markets will be listening closely to speeches from other FOMC members this week, culminating in speeches from Janet Yellen and Fed Governor Stanley Fischer on Friday.

Daily Pivots: (S1) 0.7641; (P) 0.7670; (R1) 0.7704; More...

AUD/USD's fall today and break of 0.7605 support indicates that the rebound from 0.7158 has completed at 0.7740 already. Intraday bias is turned back to the downside for 55 day EMA (now at 0.7570) first. Sustained trading below there will pave the way to lower side of medium term range at 0.7144/7158. On the upside, break of 0.7740 will bring another rise, but we'd still expect strong resistance from 0.7777/7833 resistance zone to bring near term reversal.

In the bigger picture, we're still treating price actions from 0.6826 low as a correction. And, as long as 38.2% retracement of 0.9504 to 0.6826 at 0.7849 holds, long term down trend from 1.1079 is expected to resume sooner or later. Break of 0.6826 low will target 0.6008 key support level. However, firm break of 0.7849 will indicate that rise from 0.6826 is developing into a medium term rebound, rather than a sideway pattern. In such case, stronger rise should be seek to 55 month EMA (now at 0.8164) and above.

Dollar strengthens further in early US session after strong employment data. Initial jobless claims dropped -19k to 223k in the week ended February 25, below expectation of 245k. More importantly, that is the lowest level since March 1973 and indicates persistent healthiness in the job market. The four-week moving average dropped to 234.25k, down from 240.50k, hitting lowest since April 1973. Continuing claims rose 2k to 2.07m in the week ended February 18. The greenback is boosted by increasing speculations of a rate hike by Fed this month. Technically, the greenback took out near term resistance level against Sterling and Canadian Dollar earlier this week. While it's still limited below corresponding resistance against Euro and Yen, AUD/USD is following and broke a near term support level today.

Euro unmoved by CPI data

Eurozone CPI accelerated to 2.0% yoy in February, above expectation of 1.9% yoy, and met ECB's target. Core CPI, nonetheless, was unchanged at 0.9% yoy. Euro receives little support from the data and remains weak against the greenback. Some analysts point to the fact that core inflation remains weak and stable at best. And, there is no reason for ECB to change its ultra-loose monetary policies. In addition, Eurozone will be facing a number of political risks this year, including elections in France, the Netherlands and Germany, as well as Brexit. Also from Eurozone, PPI rose 0.7% mom, 3.5% yoy in January, unemployment rate was unchanged at 9.6%. German import price rose 0.9% mom in January.

Sterling PMI construction beat expectation

Sterling, on the other hand, strengthens mildly against Euro too. UK construction PMI rose to 52.5 in February, above expectation of 52.0. Markit noted that "February's survey data highlights that the UK construction sector has rebounded from its postreferendum soft patch but remains on a relatively slow growth trajectory." However, "weaker momentum in the house building sector was a key factor weighing on construction growth, alongside a renewed fall in work commercial projects." Also from Europe, Swiss GDP rose 0.1% qoq in Q4, below expectation of 0.4% qoq. Swiss retail sales dropped -1.4% yoy in January.

Australia trade surplus shrank sharply

Australia trade surplus narrowed to AUD 1.3b in January, much smaller than expectation of AUD 3.8b. Exports dropped -3%, AUD 31.8b, led by sharp decline in non-monetary gold and non-rural exports. Imports, however, jumped 4% to 30.5b, with a surge in consumption, intermediate and other merchandise and capital goods. The report is seen as mixed by economists, as the pickup in consumer goods is positive. Also from Australia, building approvals rose 1.8% mom. Japan monetary base rose 21.4% yoy in February.

AUD/USD Mid-Day Outlook

Daily Pivots: (S1) 0.7641; (P) 0.7670; (R1) 0.7704; More...

AUD/USD's fall today and break of 0.7605 support indicates that the rebound from 0.7158 has completed at 0.7740 already. Intraday bias is turned back to the downside for 55 day EMA (now at 0.7570) first. Sustained trading below there will pave the way to lower side of medium term range at 0.7144/7158. On the upside, break of 0.7740 will bring another rise, but we'd still expect strong resistance from 0.7777/7833 resistance zone to bring near term reversal.

In the bigger picture, we're still treating price actions from 0.6826 low as a correction. And, as long as 38.2% retracement of 0.9504 to 0.6826 at 0.7849 holds, long term down trend from 1.1079 is expected to resume sooner or later. Break of 0.6826 low will target 0.6008 key support level. However, firm break of 0.7849 will indicate that rise from 0.6826 is developing into a medium term rebound, rather than a sideway pattern. In such case, stronger rise should be seek to 55 month EMA (now at 0.8164) and above.

Economic Indicators Update