USD/CAD – Cautious Trading Ahead of Fed Policy Announcement

USD/CAD is trading quietly, and continues to test the 1.02 level in Wednesday’s North American session. The markets are in a holding pattern as the US Federal Reserve grabs the spotlight, with an FOMC policy statement and press conference later today. The markets will likely react after hearing from the Federal Reserve. On Tuesday, the markets got their first glimpse of US key data, and the results were mixed. Building Permits and Core CPI, both key events, came in as expected. However, Housing Starts disappointed, as it fell below the estimate. In Canada, Wholesale Sales gained a modest 0.2%, well short of the estimate of 0.5%.

US releases were mostly within expectations on Tuesday. Building Permits came in at 0.97 million, just shy of the estimate of 0.98 million. Core CPI rose slightly to 0.2%, matching the forecast. CPI also came in exactly as expected, at 0.1%. The only disappointment was Housing Starts, which remained unchanged at 0.91 million. This was short of the estimate, which stood at 0.95 million.

All eyes will be on the US Federal Reserve later on Wednesday, as the FOMC releases a highly anticipated policy statement. The markets will be particularly interested in what the Fed has to say with regard to its quantitative easing program. Speculation has been growing that the Fed could scale back QE later in the year, and this has had a very strong impact on stocks, commodities and the US dollar. The Federal Reserve has repeatedly stated that it will stick with the current program until it sees an improvement in the US economy, especially in the employment market. Currently the Fed purchases $85 billion in assets every month. If the Fed does take action or even hint at a move to tighten QE, we can expect the dollar to move higher against the major currencies.

G8 summits are often little more than photo-ops and an opportunity for the leaders to take a short break from the workload back home. However, this year’s G8 meeting in Northern Ireland served more than the usual fare, as the G8 leaders used the occasion to announce the start of negotiations on a free trade agreement between the European Union and the United States. The stakes are very high – the EU and US produce 50% of the global output, and a third of world trade. The deal would be the largest bilateral trade pact ever, and could add up to $100 billion to the economies of each partner. Negotiations will get underway in Washington next month, with a deal expected to be signed by the end of 2014. Canada has a free trade agreement with the US, and is presently negotiating a pact with the EU.

 

USD/CAD for Wednesday, June 19, 2013

Forex Rate Graph 21/1/13
USD/CAD June 19 at 15:10 GMT

USD/CAD 1.0189 H: 1.0239 L: 1.0186

 

USD/CAD Technical

S3 S2 S1 R1 R2 R3
1.0058 1.0100 1.0157 1.0229 1.0282 1.0337

 

USD/CAD is testing the 1.02 line, as it has throughout the week. The pair continues to receive support at 1.0157. This line could face pressure if the pair moves lower. The next support level is at the round number of 1.01. On the upside, the pair faces resistance at 1.0229. This line is  not strong, and the pair punched past it late in the Asian session before retracting. This is followed by stronger resistance at 1.0282.

  • Current range: 1.0157 to 1.0229

 

Further levels in both directions:

  • Below: 1.0157, 1.01, 1.0058 and 1.00
  • Above: 1.0229, 1.0282, 1.0337, 1.0442 and 1.0502

 

OANDA’s Open Positions Ratio

USD/CAD ratio continues to be subdued, and is unchanged in the Wednesday session. Traders should note that the ratio continues to be split almost down the middle between long and short positions, indicating a lack of bias as to what direction USD/CAD will take.

The markets are understandably cautious ahead of today’s Fed release. We could, however, see some volatility from USD/CAD after the Fed has spoken.

 

USD/CAD Fundamentals

  • 12:30 Canadian Wholesale Sales. Estimate 0.5%. Actual 0.2%
  • 16:40 BOC Governor Poloz Speaks
  • 14:30 US Crude Oil Inventories. Estimate 0.5M
  • 18:00 US FOMC Economic Projections
  • 18:00 US FOMC Statement
  • 18:00 US Federal Funds Rate. Estimate <0.25%
  • 18:30 US FOMC Press Conference

 

*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.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.