USD/CAD – US and Canadian Key Releases Shine

US/CAD remains steady, with very little movement in Thursday’s Asian and European sessions. After a sustained rally since November, the Canadian dollar has given up some ground over the past two days. Will the correction continue?

Earlier today, there was excellent news from Canadian consumer spending indicators. Core Retail Sales, a key release, rebounded nicely and climbed 0.5%. This beat the estimate of 0.2%. Retail Sales looked even better, hitting a three-month high as it rose 0.7%, well above the forecast of a 0.2% gain.

The strong data is a further indicator that the Canadian economy is rebounding after a disappointing performance in Q3. In the US, there was good news for the US housing sector, as Building Permits beat the forecast, climbing to 0.90 million in November. This was the indicator’s highest level since August 2008.

Housing Starts was down slightly, but within the markets estimate. Existing Home Sales also was higher than the forecast, pointing to further improvement in the US housing sector, which has gone through difficult times and is critical to a sustained economic recovery.

US Unemployment Claims was not as strong as hoped, as the number of claims last week jumped to 363 thousand, above the forecast of 361K. US Final GDP posted its best gain since March 2011, jumping 3.1%, beating the estimate of 2.8%. This an excellent report, and a strong indication that the US economic recovery, which has been marked by ups and downs, continues to gain traction. Philly Fed Manufacturing Index, another key release, was solid, as it posted its best performance since April.

The markets have toned down their optimism over the fiscal cliff negotiations, as the gridlock on Capitol Hill Continues. The Republicans and Democrats continue to dig in and blame each other for the crisis, but recent polls indicate that a majority of Americans think that the Republicans need to be more flexible in their positions, especially regarding tax hikes on the wealthy.

The Republicans are well aware of public sentiment, and have softened their positions and their rhetoric. However, there is still a significant gap between the sides as far as tax hikes and the extent of spending cuts to Federal programs. The Republicans have offered tax hikes on individuals earning more than $1 million, but the Democrats want to extend these hikes to earners above $250,000. Clearly frustrated, Republican House Leader John Boehner has warned that if the President Obama doesn’t show more flexibility, he will be “responsible for the largest tax increase in American history.” The markets are not pleased that the gridlock is continuing, and we could see more volatility in USD/CAD until the fiscal cliff is resolved.

USD/CAD for Thursday, Dec 20, 2012

Dec 20 at 15:15 GMT

0.9892 H: 0.9896 L: 0.9876

USD/CAD Technical

S3 S2 S1 R1 R2 R3
0.9767 0.9812 0.9845 0.9909 1.00 1.0040

USD/CAD has edged higher, although the proximate support and resistance levels (R1 and S1) remain in place. The pair is receiving support at 0.9845. On the upside, the next resistance line is above the 0.99 line, at 0.9909. We could see this line under pressure if the pair resumes the upward trend which marked yesterday’s trading (Dec. 19).
• Current range: 0.9845 to 0.9909.
Further levels in both directions:
• Below: 0.9845, 0.9812, 0.9767, 0.9625, 0.9526 and 0.9445.
• Above: 0.9909, 1.00, 1.0041, 1.0157 and 1.0252.

OANDA’s Open Position Ratios
With US/CAD not showing a lot of movement, we can expect trader sentiment to remain in place until the pair shows a sustained breakout in either direction. Currently, the ratio for USD/CAD remains biased in favor of long positions. The loonie has been showing signs of weakness after its impressive run earlier in December, so we could see a correction with the US dollar rebounding.
USD/CAD has edged higher, but has been unable to push above the 0.99 line. With the fiscal cliff crisis continuing, we could see further volatility from the pair. The US had some excellent releases, so this could help the US dollar gain some ground against the loonie.
USD/CAD Fundamentals
• 13:30 Canadian Core Retail Sales. Estimate 0.2%. Actual 0.5%.
• 13:30 Canadian Retail Sales. Estimate 0.2%. Actual 0.7%.
• 13:30 US Unemployment Claims. Estimate 358K. Actual 361K.
• 13:30 US Final GDP. Estimate 2.8%. Actual 3.1%.
• 13:30 US Final GDP Price Index. Estimate 2.7%. Actual 2.7%.
• 15:00 US Existing Home Sales. Estimate 4.88M. Actual 5.04M.
• 15:00 US Philly Fed Manufacturing Index. Estimate -2.2 points. Actual 81 points.
• 15:00 US CB Leading Index. Estimate -0.2%. Actual -0.2%.
• 15:00 US HPI. Estimate 0.2%. Actual 0.5%.
• 15:30 US Natural Gas Storage. Estimate -73B.

*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.