The US dollar is showing some improvement against its cousin to the north, as USD/CAD is testing the 0.99 line. In Friday trading, the greenback has flexed some muscle, and is broadly stronger. The markets were in full action on Thursday, digesting a host of US key releases. There is less activity on Friday, but the markets will be keeping on eye on UoM Preliminary Consumer Sentiment, one of the most important consumer indicators. The lone Canadian release today is Manufacturing Sales.
The markets had their hands full on Thursday, as the US released a host of key data. Unsurprisingly, the data was a mix, which has been typical of recent US releases. However, market sentiment jumped as employment and housing numbers were outstanding, hitting multi-year highs. Unemployment Claims, which had looked weak earlier in January, bounced back with its best performance in five years, dropping to 331 thousand new claims. This easily beat the forecast of 369K. Housing Starts also were outstanding, improving to 0.95 million. This beat the forecast of 0.89M, and was the indicator’s highest level since June 2008. Building Permits was not as spectacular, but also came within market expectations.
The key indicator remained at 0.90 million, just shy of the estimate of 0.91M. The positive numbers were not echoed by the Philly Fed Manufacturing Index, which fell back into negative territory. The key manufacturing indicator plunged to -5.8 points, a very sharp drop. This surprised the markets, which had expected a small drop from 8.1 to 7.1 points. Coming on the heels of the Empire Manufacturing Index, which also looked dismal, these indicators point to significant contraction in the US manufacturing sector, which is weighing on the fragile economic recovery. The markets will be carefully monitoring today’s key release, Preliminary UoM Consumer Sentiment. The consumer index fell well short of expectations in the previous reading, dropping sharply to 74.5 points. The markets are expecting some improvement in the January release, with an estimate of 75.1 points.
It has been a very quiet week for Canadian releases. The highlight of the week was the Bank of Canada’s Business Outlook Survey. This well-respected report, issued each quarter, 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. Foreign Security Purchases slumped badly, coming in at just $5.62 billion, compared to $13.26 billion in December. The figures were way off market expectations, as the estimate stood at $9.45 billion. Wrapping up the trading week, Manufacturing Sales will be released later on Friday. This indicator has had a rough 2012, and December’s reading pointed to a decline of 1.4%. The markets are expecting a rebound in the upcoming release, with an estimate of a 0.9%. gain.
Earlier this week, there was some negative news about global growth prospects from the World Bank. In its Global Economic Prospects report, which is issued twice a year, the prestigious institution said that global growth in 2013 would post a gain of 2.4%. This was down from the 3.0% estimate the World Bank stated in its June 2012 report. In explaining its downgrade, the World Bank noted persistent weaknesses in the economies of developed nations, citing austerity measures, high unemployment and weak business confidence. The report also sounded the alarm over the damage in market confidence due the ongoing fiscal battles in the US, and urged a quick resolution of the issue so as to ensure market stability.
USD/CAD for Friday, Jan 18, 2013
Jan 18 at 10:05
0.9900 H: 0.9904 L: 0.9854
USD/CAD has finally shown some upward momentum, as the pair briefly broke above the 0.99 line on Friday, for the first time in two weeks. On the downside, the line of 0.9898 is fluid, and looks to have a busy day. We next encounter support at 0.9833. This line has strengthened as the pair trades around the 0.99 level.
• Current range: 0.9898 to 0.9970.
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, 1.0157, 1.0207, 1.0286.
OANDA’s Open Position Ratios
After a queit spell, we are seeing some strong movement in the USD/CAD ratio, towards short positions. This is not reflected in the pair’s current move, as the US dollar makes gains at the expense of the loonie. However, this could be an indication that trader semtiment expects this upward trend to reverse itself. The long position component continues to dominate, reflecting about 2/3 of the open positions.
USD/CAD has not had a very busy week, with the post drifting comfortably in the mid-0.98 range for most of the week. However, the US dollar is broadly stronger in Friday trading, and has clawed its way above the 0.99 line. Will the greenback be able to sustain this upward move? The US releases a key consumer indicator later today, and an unexpected reading could impact on the direction of USD/CAD.
- 13:30 Canadian Manufacturing Sales. Estimate 0.9%.
- 14:55 US Preliminary UoM Consumer Sentiment. Estimate. 75.1 points.
- 14:55 US Preliminary UoM Inflation Expectations.
*Key releases are highlighted in bold
*All release times are GMT
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