Canadian data has been beating expectations but it probably won’t last. Here’s what to do

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Canada’s data has been strong

Here’s a look at the economic surprise index from Citi, it measures where economic data is better or worse than expected. At the moment, Canada is on top after strong employment and CPI data.

It’s been a nice run for Canada but a few things are starting to weigh:

  1. Oil price declines are soon going to hit spending and investment
  2. Housing has been sluggish, taking away a tailwind from the past decade
  3. Employment has been inexplicably strong
  4. Canadian natural gas prices are depressed

For a trade, I think the day to watch will be January 31. That’s when the November GDP report is due and it’s looking like it could be very weak. The consensus is -0.1% after a +0.3% reading in October but it could be weaker. That’s because November data on wholesale sales, manufacturing sales and retail sales were all poor.

On the flipside, the euro has been beaten down on poor economic data. It’s well deserved because there are plenty of data points and they’ve been uniformly bad. That said, the euro has held up and ECB hikes are priced out for more than a year.

The EUR/CAD chart hit a six-month high at the start of the year but has been in a sharp retreat. It’s near the 2019 now and some minor trendline support. I would probably prefer GBP/CAD or something else but on a pure economics trade, EUR/CAD longs are compelling.

EURCAD chart

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