USD/CAD is trading quietly as we begin a new trading week, with the pair trading in the 0.9850 range. There are no US releases today, but the markets will be listening attentively as Fed Chair Bernard Bernanke speaks on Monday in the University of Michigan. In Canada, there is just one release, the Bank of Canada Business Outlook Survey. On Friday, both Canada and the US released Trade Balance numbers. The US numbers looked very weak, with the Trade Deficit hitting its highest levels since April. The Canadian numbers were also a disappointment, as the Trade Deficit hit a four-month high.
Last week saw the loonie improve against the greenback, as the Canadian dollar jumped on the currency bandwagon. The US dollar was marked by broad weakness, following the decision by the European Central Bank to maintain interest rates at their current level of 0.75%. Although this move was widely expected, market sentiment rose after the announcement, for two reasons. First, the decision to stay the course was unanimous, and ECB President expressed his confidence in the Eurozone economy.
Despite the serious challenges that the Eurozone is facing, notably the debt crisis, the ECB decided not to change its interest rate policy in order to bolster the Eurozone. Second, there was no indication from the ECB that it might resort to slashing rates in the near future. In doing so, the ECB is sending a strong message to the markets that for the near future at least, it is likely to make do with unconventional monetary steps as it tries to help along the Eurozone economy. This vote of confidence in Europe gave a huge boost to the euro and pound, at the expense of the US dollar.
US Trade Balance numbers caught the markets off guard, as the Trade Deficit ballooned last month, posting a deficit of $48.7 billion. This was way above the estimate of $41.1 billion, and represented the highest deficit levels since April. The figures indicate a strong demand for imports by US consumers, a sign of greater consumer spending. Increased consumer confidence and spending is a critical engine for economic growth, but whether the recovery has taken hold and the US economy is headed in the right direction is not at all certain. There are worrying signs, with the staggering US debt still out of control and stubbornly high unemployment.
The fiscal cliff has been averted for now, but the Republicans and Democrats will again have to work together in Congress and make decisions about spending cuts and the debt ceiling. In Canada, the Trade Deficit also widened, posting a reading of $2.0 billion. The markets had expected a much smaller deficit of $0.3 billion. As in the US, these numbers point to an increase in imports and stronger consumer spending. The markets are hopeful that this release is indicative of stronger economic growth.
In Monday’s highlights, the markets will be all ears as Federal Chairman Bernard Bernanke speaks at the University of Michigan in Ann Arbor. Bernanke will discuss monetary policy and the state of the global economy in his remarks. Analysts are hoping to glean some clues with regard to a possible end date for the Federal Reserve’s current QE program. Although the Fed has not set a deadline for the end of QE, there has been speculation that the program could end sometime in 2013. This could have major ramifications for the US dollar, since QE is dollar-negative, so an early end to the program would be bullish for the greenback. In Canada, the BOE will release its Business Outlook Survey. The report surveys Canadian businesses for their views on economic and business conditions and their outlook on the Canadian economy.
USD/CAD for Monday, Jan 14, 2013
Jan 14 at 14:15
0.9856 H: 0.9865 L: 0.9832
USD/CAD has started the week with little movement, as it trades around 0.9850. The pair is receiving support at 0.9833. This line saw some activity in the European session. The next line of support is 98.09. On the upside, 0.9898 is providing resistance. This line was last tested ten days ago.
• Current range: 0.9833 to 0.9898.
Further levels in both directions:
• Below: 98.33, 0.9809, 0.9767, 0.9625 and 0.9526.
• Above: 0.9898, 0.9970, 1.0003, 1.0041 and 1.0157.
OANDA’s Open Position Ratios
The slight shift in favor of long positions continues in the USD/CAD ratio. This bias could be an indication that we will see the US dollar show some improvement. The long position component now makes up more than 2/3 of the ratio. Will the US dollar rebound from last week’s losses? So far, the pair is showing little movement as we begin Monday’s North American session.
Both Canada and the US released weak Trade Balance Figures, and USD/CAD did not react. We could see some movement if Bernanke has something interesting to say. Otherwise, with only one economic release scheduled, it could be uneventful start to the week.
• 1:20 US FOMC Member Charles Evan Speaks
• 15:30 Canadian BOC Business Outlook Survey
•21:00 US Fed Chairman Bernard Bernanke Speaks at University of Michigan in Ann Arbor
*Key releases are highlighted in bold
*All release times are GMT
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