USD/ CAD – Loonie Rangebound Against Greenback

USD/CAD is showing very little activity in Friday trading. The US dollar has inched higher, crossing back above the 1.03 level.  The pair didn’t give much attention to the interest rate decisions in the Eurozone and in London, and strong employment numbers in the US didn’t have much impact either. On Friday, we could see the pair show some life, as both Canada and the US release key employment numbers, highlighted by Employment Change and the Unemployment Rate (the US release is entitled Non-Farm Employment Change).

There was little surprise on Thursday, as the ECB voted to maintain the benchmark interest rate at 0.75%. Although the markets expected the rate to remain steady, and ECB head Mario Draghi didn’t have anything new to share at the ECB press conference, the markets were pleased, and the euro took advantage, gaining a cent against the dollar. Draghi once again reminded us that, yes, the Eurozone economy is having a tough go of it, but things will improve later in the year. Draghi also reassured his listeners that the crisis in Italy would not spread, but did call on member countries to implement needed structural reforms, in what could be seen as a hint to Italy to continue with its austerity measures in order to get its economy headed in the right directions. The ECB’s decision to maintain rates was not unanimous, as some policymakers wanted to lower rates. Given the lackluster performance of the Eurozone, with the notable exception of Germany, the ECB could well step in and lower rates if the Eurozone economy fails to turn around.

In Italy, the political drama continues, as the recent election failed to crown a winner who could cobble together a coalition that can run the country. Italy, boasting the third largest economy in the Eurozone, is facing serious economic difficulties, and can ill-afford this political paralysis. Center-left leader Pier Luigi Bersani has offered to form a minority government with Beppe Grillo, head of the 5 Star Movement. However, Grillo, who continues to rave and rant against the establishment, has so far refused to join forces with any other party. Parliament will sit for the first time next week, and President Giorio Napolitano is expected to begin consultations with party leaders on March 19, as efforts to sort out the political paralysis shift into high gear. If Napolitano is unsuccessful, the only resort may be to send Italians back to the voting booths.

The US economy has posted some solid data recently, and this has raised speculation as to whether the Fed might wind up its current round of QE, which involves the purchase of $85 billion in assets each month. Although Fed Chair Bernard Bernanke and Vice-Chair Janet Yellen have stated that QE will continue, signs of a stronger recovery would put pressure on the Fed to consider winding up or modifying the current asset purchase program. Employment numbers have been sharp this week, and if we see a drop in the Unemployment Rate of Friday, this would be further evidence that the recovery is gaining traction, and the Fed will face more pressure to wind down its stimulus package.

USD/CAD for Friday, March 8, 2013

1.0311 H: 1.0315 L: 1.0296

USD/CAD Technical 

USD/CAD is marked by narrow range trading in Friday’s European session. The proximate support and resistance levels remain intact, as the pair trades just above the 1.03 line. The pair is receiving support at 1.0282. This is a weak line, and could face pressure if the Canadian dollar can sustain any momentum.  This is followed by support at 1.0229.  On the upside, the pair is facing resistance at 1.0361. This line has held firm since June 2012. This is followed by strong resistance at 1.0446.

• Current range: 1.0282 to 1.0361

Further levels in both directions:

• Below: 1.0282, 1.0229, 1.0157, 1.01, 1.0041, 1.00 and 0.9940
• Above: 1.0361, 1.0446, 1.0523 and 1.0642

OANDA’s Open Position Ratios

USD/CAD ratio is not showing much movement in Friday trading. This is consistent with what we are seeing from the pair, as USD/CAD continue to trade in a narrow range just above the 1.03 line. With open long positions enjoying a substantial majority, trader sentiment is strongly biased towards the Canadian dollar improving against the US currency.

The US dollar continues to push, slowly, but surely, against the loonie, and is enjoying the view from its 1.03 perch. Will the upward momentum continue? We could see the pair shake out of its listless movement later in the day, as both Canada and the US release key employment figures. Look for some volatility before the weekend if there are any unexpected readings.

USD/CAD Fundamentals

• 13:30 Canadian Employment Change. Estimate 7.8K
• 13:30 Canadian Unemployment Rate. Estimate 7.1%
• 13:30 Canadian Labor Productivity. Estimate -0.1%
• 13:30 US Non-Farm Employment Change. Estimate 162K
• 13:30 US Unemployment Rate. Estimate 7.9%
• 13:30 US Average Hourly Earnings. Estimate 0.2%
• 15:00 US Wholesale Inventories. Estimate 0.4%

*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.