USD/CAD Forecast: Likely to test 1.24 if US GDP disappoints

USD/CAD trimmed gains during the European session and slipped below 1.25 handle largely on the back of a minor retracement seen in US dollar versus its major competitors as markets now eagerly await the final reading of the US Q4 GDP due ahead of US open. The US dollar index which measures the relative performance of the greenback against six major currencies, retreated from fresh four day highs reached at 98.20 levels and now trades at 97.88, recording a 0.34% gain on the day. However, falling oil prices continue to dent the loonie, cushioning the downside in USD/CAD. Meanwhile, USD/CAD currently trades modestly flat at 1.2488 levels, retreating from session highs posted at 1.2529 levels.

Technically, on the hourly chart, USD/CAD seems to have given a symmetrical triangle break out on the downside and has even breached the crucial hourly 50-MA support located at 1.2489 levels. At the moment, the pair seems to be struggling around 1.2492 levels, well below the trend line support at 1.2506. Moreover, USD/CAD has failed to surpass a strong resistance zone formed around 1.2530 levels on several occasions. The hourly RSI standing at sub 50 levels, aims lower indicating further room for declines.

On the macroeconomic front, turning to the upcoming fourth quarter US GDP numbers, the composition of growth is expected to be favourable and the headline should be as well - forecasters have expected a 2.4% annual rate - right in the middle of the second and the advance estimates – and up from the 2.2% growth previously. Personal consumption is expected to have risen at a 4.4% annual rate up from the earlier 4.2%, which had already been tied for the best print since 2006 with Q4 2010.

Although, the pair received a boost from yesterday upbeat US employment and services sector data and anticipates a positive US growth figures, the recent surprise fall in durable goods orders raises concerns over the expected US GDP outcome. As durable goods orders data in US is considered as an indicator of the economic health as it reflects level of business spending and investments. A big miss on the numbers raised serious worries whether US economic growth has lost momentum. Orders for durable goods declined a seasonally adjusted 1.4% in February from January. Excluding the volatile transportation sector, orders fell 0.4%, the fifth consecutive monthly decline.

Hence, it’s expected that USD/CAD may test 1.2400 levels if the drop in durable goods numbers actually translates in to the US economic growth losing steam and hence the final Q4 US GDP misses estimates.

Overall, USD/CAD is seen extending losses below 1.25 barrier and is likely to continue its bearish momentum as the US GDP data may miss market expectations as anticipated. The pair may fall to the immediate support at 1.2460 levels, below which doors will open for a retest of 1.24 handle. However, if the US GDP figures come out in line with expectations or beat expectations, USD bulls may take charge and the pair is likely to pierce through 1.2500 levels and retest daily highs at 1.2530, beyond which the pair may shoot to 1.2600 levels.