The Canadian dollar has improved in Monday trading, as USD/CAD has dropped below the 1.02 line. The loonie has received a boost as Cyprus reached terms with the European Union and the International Monetary Fund for a EUR10 billion bailout. The drama in Cyprus preoccupied the markets last week as the financial crisis in one of the Eurozone’s smallest members threatened to spread to the Eurozone. There are no economic data releases out of Canada or the US as we begin the new trading week, but the US will be in full gear on Tuesday, with the release of three key releases – Core Durable Goods Orders, CB Consumer Confidence, and New Home Sales.
There was good news out of Brussels on Monday morning for the markets, which had anxiously followed the drama in Cyprus last week. Responding to Cyprus’s rejection of a bailout agreement which included a bank levy on all deposits, the ECB had threatened to cut off all emergency aid to banks, which would have resulted in the collapse of the country’s banking sector and possibly leading to a Euroexit by the small island country. There was a fear that a failure to reach a deal would lead to a financial market selloff which could spread to the Eurozone. In the end, Cyrpus will receive EUR10 billion in rescue funds, and the second largest bank in Cyprus, Laiki Bank, will be winded down. All deposits below EUR100,000 will be transferred to the Bank of Cyprus and “fully guaranteed”, but deposits over that sum will be frozen and used to pay off Laiki’s debts and recapitilize the Bank of Cyprus. According to the EU, this will raise EUR4.2 billion. The agreement is sure to be unpopular in Cyprus, and will mean the loss of thousands of jobs as Laiki Bank is dismantled.
On Thursday, there was a host of key economic data for the markets to sift through, as both the US and Canada boasted solid numbers. In the US, Unemployment Claims were up slightly to 332 thousand, but easily beat the estimate of 343 thousand. More importantly, it was the fourth consecutive week that the key employment indicator has been better than expectations. There was good news as well from the manufacturing sector, as the Philly Fed Manufacturing Index climbed to 2.0 points, beating the estimate of -1.6 points. Existing Home Sales was up slightly from the February reading to 4.98 million, but fell short of the estimate of 5.02 million. Canadian releases also were positive, as Core Retail Sales, a key indicator, climbed to 0.5%, just above the estimate of 0.4%. Retail Sales looked even sharper, posting a 1.0% gain, well above the estimate of 0.6%. Both consumer spending indicators rebounded nicely after posting declines in the February releases. There were no surprises from the US Federal Reserve, which wrapped up a two-day policy meeting on Wednesday. The Fed announced that it was maintaining interest rates as well as the current round of asset purchases. The benchmark interest rate remains at 0%-0.25%, and the Fed will continue to purchase $85 billion in assets each month. There had been talk of the Fed modifying its monetary policy, with the US economy shown signs of improvement, such as lower unemployment and stronger consumer spending. However, Fed chief Bernanke said that the US labor market was still weak and also noted concern about recent tax increases and federal spending cuts.
Back in Canada, the government released the federal budget late last week. Finance Minister Jim Flaherty stated that the government plans to eliminate the federal deficit by 2015. To achieve this target, the government is relying on stronger economic growth rather than spending cuts. With a current deficit of $25.9 billion for the present fiscal year, this is an ambitious goal. If the markets see improved growth and a smaller deficit, as the government has confidently predicted, the Canadian dollar is likely to improve as a result.
USD/CAD for Monday, March 25, 2013
1.0194 H: 1.0233 L: 1.0189
The Canadian dollar has broken out of the narrow range trading which we saw late last week, as USD/CAD has dropped below the 1.02 line. The pair is facing resistance at 1.0229. This is a weak line, and could face further activity if the US dollar rebounds higher. There is stronger resistance at 1.0282. On the downside, there pair is receiving support at 1.0157. The next support level is at the round number of 1.01, which has held steady since mid-March.
- Current range: 1.0157 to 1.0229
Further levels in both directions:
- Below: 1.0157, 1.01, 1.0041 and 1.00
- Above: 1.0229, 1.0282, 1.0361, 1.0446 and 1.0523
OANDA’s Open Position Ratios
As we begin the new trading week, USD/CAD ratio is pointing to strong movement in the direction of long positions. This is not reflected in the current activity of the currency pair, as the Canadian dollar has posted modest gains against the US currency. Further activity in this direction in the ratio would indicate an expectation for the pair to undergo a correction and the US dollar recover from its recent losses.
The Canadian dollar continues to make slow but steady progress against the greenback, as USD/CAD has crossed below the 1.02 level in Monday’s European session. Will the loonie continue to improve? There are no economic data releases on Monday, but with the US releasing three major events on Tuesday, we could see some volatility from the pair if these releases are not in line with market expectations.
- 4:15 US FOMC Member William Dudley Speaks in New York
- 17:15 US Fed Chair Bernard Bernanke Speaks in London
*Key releases are highlighted in bold
*All release times are GMT
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