The Canadian dollar remains under strong pressure from the US dollar, as USD/CAD trades in the mid-1.02 range. The markets are jumpy following the inconclusive results from the Italian parliamentary election, which took place on Sunday and Monday. The political stalemate have raised fears about political instability in Italy, the Eurozone’s third largest economy. There are no Eurozone releases on Tuesday, but the markets in the US will have plenty of economic news to sift through, including three key releases. In Washington Federal Reserve head Bernard Bernanke testifies before the US Senate Banking Subcommittee. As well, CB Consumer Confidence and New Home Sales will be released later on Tuesday. There are no scheduled releases out of Canada on Tuesday.
Italian elections are traditionally boisterous and colorful events, and the results of this election certainly didn’t disappoint in that regard. The 5-Star Movement, which was largely a protest movement run by Beppe Grillo, a former comic, shocked pundits by winning the most votes. Grillo’s party now becomes the key to any chance of forming a coalition. The Center-left bloc, headed by Pier Luigi Bersani, won a majority in the lower house of parliament, but there was no clear winner in the upper house. This leaves the country in a political stalement, as any coalition cannot govern without forging a majority in both houses. Prime Minister Monti’s centrist bloc fared poorly at the polls, reflecting widespread voter dissatisfaction with the former Prime Minister’s severe austerity measures. The deadlock represented a worst-case scenario for the markets, which is concerned that political instability in Italy could affect the entire Eurozone. The euro has made up some ground after Monday’s sharp losses, but remains under pressure.
The Federal Reserve will again be in the market spotlight on Tuesday, as Federal Reserve Chair Bernanke testifies before the US Senate Banking Committee. Recently, the Fed released the minutes of its most recent FOMC meeting. The minutes indicated that policymakers had discussed slowing or even stopping the current round of QE before the US employment situation improves, which was an about-face in the Fed’s stance. Previously, the Federal Reserve had stated that it would not terminate the current round of QE before the US unemployment rate fell to 6.5%. Bernanke will likely be questioned about this issue at the hearing, and we could see some fluctuations in EUR/USD, depending on the markets’ reaction to Bernanke’s testimony.
USD/CAD for Tuesday, Feb 25, 2013
USD/CAD Feb 26 at 12:35 GMT
1.0256 H: 1.0261 L: 1.0241
USD/CAD has a strong run, pushing slowly but steadily as the Canadian dollars continues to retreat. However the proximate support and resistance line (S1 and R1 above) remain intact. The pair is receviing support at 1.0229. This is a weak line, and saw action earlier. There is stronger support at 1.0157. On the upside, 1.0308 is the next line of resistance. This line was last tested in June of 2012, but could see some activity if the US dollar continues to push higher. This is followed by resistance at 1.0380.
- Current range: 1.0229 to 1.0308
Further levels in both directions:
- Below: 1.0229, 1.0157, 1.01, 1.0041, 1.00 and 0.9940
- Above: 1.0308, 1.0380, 1.0446, 1.0523 and 1.0642
OANDA’s Open Position Ratios
As expected, the USD/CAD ratio has swung into action, with movement towards long positions. This is reflected in movement by the pair, which as been on a steady upward trend. If the ratio continues to show activity towards long positions, we could see the greenback post further gains against the loonie.
The US dollar continues to look strong, and has enjoyed a solid run against the Canadian dollar. The markets reacted negatively to the Italian election results, and this has helped the safe-haven US dollar post gains. With three key releases out of the US later today, look for USD/CAD to continue to fluctuate.
- 14:00 US S&P/CS Composite-20 HPI. Estimate 6.7%.
- 14:00 US HPI. Estimate 0.6%.
- 15:00 US CB Consumer Confidence. Estimate 60.8 points.
- 15:00 US Fed Chairman Bernard Bernanke Speaks. Bernanke will testify on the Semiannual Monetary Policy Report before the Senate Banking Committee.
- 15:00 US New Home Sales. Estimate 381K.
- 15:00 US Richmond Manufacturing Index. Estimate -4 points.
*Key releases are highlighted in bold
*All release times are GMT