After a sharp drop yesterday (Dec. 10) USD/CAD is trading in a narrow range, as the markets wait as the markets await the results of the upcoming Federal Reserve policy-setting meeting on Wednesday. There is increased speculation that the Fed will introduce additional monetary easing in an effort to boost US economic growth. While the politicians in Washington continue to squabble over the fiscal cliff, the Fed may decide to intervene with an additional monetary stimulus package. Operation Twist is nearing its end, and the Fed could decide to purchase $30-40 billion a month of Treasury notes. This would be in addition to the Fed’s current program of purchasing $40 billion a month of agency mortgage-backed securities.
There is little room for the Fed to adjust interest rates due to their low levels, and the markets are anticipating that the current low rates policy will continue well into 2015. Although recent unemployment data was positive, the unemployment rate is still quite high at 7.7%, and there are other weak spots in the US economy, particularly in the manufacturing and housing sectors. These soft spots could serve as the catalyst for further Fed intervention. If the Fed does pull the trigger on Q4, we could see a strong response by USD/CAD.
The Canadian dollar has looked sharp against its US counterpart, with the loonie improving by almost a full cent in the past week. There were two important developments which facilitated this rally. First, the Canadian government gave approval to the takeover of two Canadian energy companies by state-run companies from China and Malaysia. Secondly, Canadian employment figures were exceptionally sharp in November. Employment Change jumped by 59.3 thousand, crushing the market estimate of 11.3K. A well, the Unemployment Rate dipped to 7.2%, its lowest level since July. In economic news, both the US and Canada released monthly Trade Balance data earlier on Tuesday. The Canadian release indicated a small deficit of 0.2 billion dollars. This figure was much lower than the market estimate of a deficit of 1.2B. On the US side, the monthly deficit widened last month to 42.2 billion dollars, but this beat the forecast of -42.7B.
USD/CAD for Mon, Dec 11, 2012
USD/CAD Dec 11 at 19:30 GMT
0.9866 H: 0.9881 L: 0.9858
S3 S2 S1 R1 R2 R3
0.9625 0.9767 0.9812 0.9909 1.00 1.0041
USD/CAD continues to be rangebound for the second straight day. The pair has leveled off since the volatility we saw at the end of last week. The pair continues to receive support at 0.9812, with a stronger line at 0.9767. On the upside, there is resistance at 0.9909. With the pair boxed in a narrow range, this resistance line is holding steady.
• Current range: 0.9812 to 0.9909
Further levels in both directions:
• Below: 0.9812, 0.9767, 0.9625, 0.9526 and 0.9445.
• Above: 0.9909, 1.00, 1.0041, 1.0157 and 1.0252.
OANDA’s Open Position Ratios
USD/CAD continues to trade in a narrow range. There is a bias in favor of the long positions, and there is room for the pair to move higher and retract from the sharp slide we saw at the end of last week. If the pair continues to be rangebound, we will not see much change in the ratio for the pair.
The pair has had a very quiet week, and this could continue, as investors and traders wait for the Federal Reserve policy-setting meeting on Wednesday. With the markets waiting to see if the Fed implements another round of QE, look for the rangebound trading to continue.
• 13:30 Canadian Trade Balance. Estimate -1.2B. Actual -0.2B.
• 13:30 US Trade Balance. Estimate -42.7B. Actual -42.2B.
• 15:00 US IBD/TIPP Economic Optimism. Estimate 51.6 points. Actual 45.1 points.
• 15:00 US Wholesale Inventories. Estimate +0.5%. Actual +0.6%.
(All release times are GMT)
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