USD/CAD Dec. 18 – Boxed in Narrow Range

The Canadian dollar leveled off from its recent gains, as USD/CAD is trading in a narrow range. The loonie took full advantage of the Federal Reserve’s decision to implement another round of monetary easing, as the US dollar broadly weakened following the Q4 announcement. The Fed is stepping in order to bolster the US economic recovery, which has been moving at a frustratingly slow pace. Market focus has now shifted to the looming fiscal cliff crisis. This refers to a combination of tax hikes and spending cuts if Congress does not take action before the end of 2012. The Republicans have softened their position, and it appears that any agreement will include tax hikes on the nation’s wealthiest earners.

However, the sides are still far apart on how deep the cuts should be to federal spending cuts, with the Democrats strongly opposed to cuts to major programs such as Medicare. Negotiations between the Democrats and the Republicans are in full gear, and lawmakers on Capitol Hill would love to hammer out a deal before the Christmas holidays next week. So what does this mean for the Canadian dollar? Since the Canadian continues to have strong ties with US fiscal cliff discussions, any sense of a setback in negotiations will hurt the loonie, as investors will scurry to the safe-haven US dollar. On the other hand, if there are signs of progress in the discussions on Capitol Hill, the Canadian dollar could take advantage and make some inroads against the greenback. There are only two economic releases on Tuesday, so we could see the rangebound trading continue for USD/CAD.

USD/CAD for Tuesday, Dec 17, 2012

USD/CAD
Dec 18 at 15:00 GMT

0.9849 H: 0.9852 L: 0.9834

S3 S2 S1 R1 R2 R3
0.9625 0.9767 0.9812 0.9854 99.09 1.00

USD/CAD Technical
USD/CAD continues to trading in a narrow range. There is weak support at 0.9812, but this line is holding firm. On the upside, 0.9854 is the next resistance line. If the pair breaks through, it has room to keep moving higher towards the 0.99 line.
• Current range: 0.9812 to 0.9954.
Further levels in both directions:
• Below: 0.9812, 0.9767, 0.9625, 0.9526 and 0.9445.
• Above: 0.9854, 0.9909, 1.00, 1.0041, 1.0157 and 1.0252.

OANDA’s Open Position Ratios
Trader sentiment for USD/CAD is strongly in favor of the US dollar rebounding against its Canadian counterpart. With Q4 behind us, the loonie is closely tied to the fiscal cliff discussions, and could lose ground if the crisis appears to be getting worse.

Like many of the major currencies, USD/CAD is trading in a narrow range, unable to sustain a breakout. With the markets winding down their operations as we near the holidays, the drifting could continue barring some dramatic news, such as the fiscal cliff discussions.

USD/CAD Fundamentals

• 13:30 US Current Account. Exp. -105B. Actual -108B.
• 15:00 US NAHB Housing Market Index. Exp. 47 points. Actual 47 points.

*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.