USD/CAD – Little Movement As US Markets Enjoy Holiday

USD/CAD is showing little activity as we begin the new trading week. The pair was trading in the 0.9925, as the US dollar has flexed some muscle against its Canadian cousin. USD/CAD has jumped close to a cent in less than a week. In the US, the markets are closed for Martin Luther King Day. There were only a handful of Canadian releases last week, but there is more activity in the upcoming week, with the Bank of Canada setting its new interest rate level on Wednesday. Today’s lone release was Wholesale Sales, which beat the market estimate.

There was only one release on Monday, Canadian Wholesales Sales. This consumer spending indicator fell in December, dropping to 0.7% from 0.9% the previous release. However, this figure beat the market estimate of 0.5%. Wholesales Sales has looked shaky in the latter half of 2012, so the December numbers were certainly a relief to the markets. Core Retail Sales will be released on Tuesday, followed by the interest rate announcement on Wednesday.

The US continues to send out mixed messages in its economic releases, making it difficult to evaluate the extent of the US recovery. Housing and Employment numbers looked excellent, hitting multi-year highs. The good news, however, was tempered by manufacturing and consumer confidence data. The  Philly Fed Manufacturing Index surprised the markets with a very sharp drop, and fell back into negative territory. 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. Last week wrapped up with Preliminary UoM Consumer Sentiment, which had its worst performance in a year. The indicator dropped to 71.3 points, well below the forecast of 75.1 points. Consumer spending and confidence is a critical component of economic growth, and these numbers will have to improve significantly if the US recovery is to gain traction.

The markets are full of anticipation ahead of a key Bank of Japan policy meeting on Tuesday. The BOJ will be huddled for two days, and the outcome could have a major impact on USD/JPY, which has been flirting with the 90 level. The central bank is widely expected to take additional easing steps, and to double its inflation target to 2%. This would bring it in line with the government’s inflation stance. Prime Minister Shinzo wants to kick-start the sluggish Japanese economy, and has targeted deflation, which has been a long-term problem. He has put strong pressure on the BOJ to fall into line with the government’s aggressive economic platform, and is expected to appoint a new BOJ governor who can be counted on to comply with the government’s agenda.

USD/CAD for Monday, Jan 21, 2013

USD/CAD Jan 21 at 14:45 GMT

0.9930 H: 0.9936 L: 0.9910

USD/CAD has finally shown some upward momentum, as the pair trades above the 0.99 line. On the support side, 0.9898 is providing weak support. 0.9833 is a stronger line. On the upside, 0.9954 is the next line of resistance. This line was last tested in late December, and could see activity if the greenback’s upward move continues.

• Current range: 0.9898 to 0.9954.

Further levels in both directions:

• Below: 0.9898, 0.9833, 0.9809, 0.9767, 0.9625 and 0.9526.

• Above: 0.9954, 1.0003, 1.0041, 1.0157, 1.0207, 1.0286.

OANDA’s Open Position Ratios

Although USD/CAD has been quiet since Friday, the same cannot be said about the USD/CAD ratio. We are seeing very strong movement towards short positions. This would indicate that many long positions have been filled as the US dollar strengthens against its Canadian counterpart. The heightend activity in the ratio could be a sign that we will see more volatility from the pair soon.

The US dollar posted gains against the loonie last week and the pair is getting closer to the all-important parity line. There are key releases out of both Canada and the US on Tuesday, so any unexpected readings could affect the movement of the pair.

USD/CAD Fundamentals

• 13:30 Canadian Wholesale Sales. Estimate 0.5%. Actual 0.7%.

*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.