USD/CAD – US Retail Sales Improve, but Manufacturing Data Dismal

USD/CAD continues to trade in the 0.9850 range as the pair has had difficulty sustaining a move in either direction. This could change, however, as the markets digest a host of US releases which were published earlier on Tuesday. The markets displayed little reaction to remarks by Federal Reserve Chairman Bernard Bernanke on Monday, who failed to give any hints as to when the current round of QE might end. There are no Canadian releases on Tuesday.

Federal Reserve Chairman Bernard Bernanke spoke at the University of Michigan on Monday, and the markets were listening closely. Analysts were looking for any possible clues with regard to an end date for the Federal Reserve’s current Quantitative Easing program. The Fed has not set a deadline for the end of QE, but there has been speculation that the program could end sometime in 2013. This would 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. However, Bernanke did little more than express his concern about the speed of the US recovery. He noted that the economy has shown signs of improvement, but he was still unsatisfied with the economy’s progress.

Given these sentiments, it seems unlikely that the Fed will consider ending the current round of QE in 2013, barring a spectacular recovery by the US economy during the year. Underscoring this point, the president of the San Francisco Federal Reserve Bank, John Williams, stated that he expected the Fed to continue its bond buying program “well into the second half of 2013.” Although Bernanke avoided talking about QE, he was more forthcoming with regard to the debt ceiling issue, which is likely to be a hot topic, if not a full-blown crisis, in February. The US is quickly approaching its debt limit of $16.4 trillion, and Bernanke said Congress must act and address the issue. He further noted that tinkering with interest rates will not make much difference, but that if Congress ensures that the country’s fiscal house is in order, interest rates would rise as the economy improves.

In Canada, the Bank of Canada issued its quarterly Business Outlook Survey on Monday. This well-respected report provides a snapshot of the sentiments of Canadian firms with regard to economic conditions and the business climate. The report found that Canadian businesses expect to see an improved business climate in 2013, enabling them to hire more employees. The survey also found that Canadian firms had noted an easing of lending conditions in the past few months. However, optimism remains weak, as uncertainty about the direction of the Canadian economy continues to weighs on the business sector.

There was plenty of economic news on Tuesday, as the US released several key indicators. Retail sales numbers showed improvement, as both Core Retail Sales and Retail Sales beat their respective estimates. Core Retail Sales rose 0.3%, which was better than the estimate of 0.2%. Retail Sales looked even better, as the key indicator hit a four-month high, posting at gain of 0.5%. The estimate stood at 0.2%. The Producer Price Index declined by 0.2%, slightly more than the forecast of -0.1%. Core CPI showed no change, rising a modest 0.1%. This was slightly below the estimate of 0.2%. The positive retail sales numbers were not reflected in today’s manufacturing release, which looked very weak. The Empire State Manufacturing Index dropped -7.8 points, shocking the markets, which had anticipated a gain of 1.9 points. This important index has posted consecutive declines since July, and points to serious weakness in the US manufacturing sector.

USD/CAD for Tuesday, Jan 15, 2013

USD/CAD
Jan 15 at 17:05
GMT

0.9849 H: 0.9867 L: 0.9832

USD/CAD has started the week with little movement, as the pair trades around 0.9850. With the subdued activity, the pair has been unable to sustain any momentum and break through the proximate support or resistant lines (S1 and R1 above). The pair continues to receive support at 0.9833. This is followed by support at 98.09. On the upside, 0.9898 is providing resistance. This line, which is protecting the 99 level, has held firm since early January.

• 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 USD/CAD ratio not showing any movement, as the pair continues to trade in a narrow range. Trader sentiment continues to be strongly biased towards the long position component. A sign of movement in the ratio could signal some fluctuation by the pair, so traders should continue to monitor the ratio for any activity.

USD/CAD has been enjoying a quiet week, unable to sustain any move in either direction. However, we could see some fluctuation, depending on how the markets react to some key retail sales and manufacturing numbers out or the US earlier today.

USD/CAD Fundamentals

• 13:00 US FOMC Member Eric Rosengren Speaks.
• 13:30 US Core Retail Sales. Estimate 0.2%. Actual 0.3%.
• 13:30 US PPI. Estimate -0.1%. Actual -0.2%.
• 13:30 US Retail Sales. Estimate 0.2%. Actual 0.5%.
• 13:30 US Core PPI. Estimate 0.2%. Actual 0.1%.
• 13:30 US Empire State Manufacturing Index. Estimate 1.9 points. Actual -7.8 points.
• 15:00 US Business Inventories. Estimate 0.3%. Actual 0.3%.

*Key releases are highlighted in bold
*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.