USD/ CAD – Loonie Breaks Out, Tests 1.02 Level

After a week that has seen little activity, USD/CAD has woken up, as the Canadian dollar has posted gains against the US currency. The loonie posted sharp gains in Thursday’s North American session, and has continued to strengthen in Friday trading. The pair is testing support at the 1.02 level in European trading. There are a host of US releases on schedule, highlighted by Core CPI and U0M Consumer Sentiment. There are no Canadian releases on Friday.

For many months, US data has been mixed, making it difficult to accurately assess the extent of the US recovery. Sometimes, indicators in the same sector have pointed in different directions, which has been a source of frustration to analysts and market watchers. However, recent US numbers have looked very good, notably employment and retail sales data. No less important, positive indicators can be found in other sectors as well, as Import Prices, Business Inventories and Crude Oil Inventories all pointed upwards. The markets have reacted with a thumbs up, and this has helped the dollar post gains against the struggling euro. Has the US recovery entered a new phase? The markets will be hoping that the positive news continues, as the US releases UoM Consumer Sentiment and Core CPI to wrap up what has been an excellent week.

Is the Canadian economy headed in the right direction? Well, that depends on who you ask, or perhaps more accurately, who is asking the questions. The Macdonald-Laurier composite index, a leading indicator, has found that the economy is growing, albeit at very modest pace. The index recorded a growth rate of 0.3% in December, and a gain of 0.2% in January. The index is comprised of nine indicators, and five of them, including Durable Goods, posted gains in January. However, those with a less optimistic view of the Canada’s economy can point to the OECD’s monthly index, which was far less upbeat about the economy. The well-respected institute stated that the Canadian economy declined by 0.1% in its January reading, and predicted more weak growth ahead. Looks like the markets will have to deal with conflicting economic indicators in trying to figure out where the Canadian economy is headed.

Over in Europe, the Eurozone continues to limp along, and one of the most pressing matters is the political stalemate which has paralyzed Italy. The Italian Parliament meets on Friday and coalition talks are set to start next week. Most Italians oppose another election, but so far, the country’s political leaders have done little besides attack and insult each other. The financial markets remain skeptical, and Italy’s three-year borrowing costs rose to their highest since December at an auction earlier this week. This comes on the heels of a credit downgrade by Fitch, which lowered Italy’s credit rating by one notch last week. The third largest economy in the Eurozone is struggling with a massive debt of 1.9 trillion euros and weak growth, and needs to quickly get a government up and running as soon as possible.

USD/CAD for Friday, March 15, 2013

1.0208 H: 1.0232 L: 1.0204 

USD/CAD Technical

USD/CAD has finally broken out of this week’s rangebound trading as the Canadian dollar has climbed higher against the US currency., The pair is facing resistance at 1.0229. Given the current volatility, this line cannot be considered safe, and could be further tested. There stronger resistance at 1.0282. On the downside, the pair is receiving support at 1.0157. This line has held firm since mid-February. It is followed by support at the round number of 1.01.

• Current range: 1.0157 to 1.0229

Further levels in both directions:

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

OANDA’s Open Position Ratios

USD/CAD ratio is pointing to movement towards short positions in Friday trading. This is consistent with what we are seeing from the pair, as the Canadian dollar has flexed some muscle, and is testing the 1.02 level.

After a week that had the excitement of paint drying, USD/CAD has finally shown some activity. The loonie has moved higher, as USD/CAD is trading just above 1.02. With the US releasing key inflation and consumer confidence numbers later on Friday, we could see some volatility from the pair later today. 

USD/CAD Fundamentals

• 12:30 US Core CPI. Estimate 0.2%
• 12:30 US CPI. Estimate 0.2%
• 12:30 US Empire State Manufacturing Index. Estimate. 9.8 points.
• 13:00 US TIC Long-Term Purchases. Estimate 39.3B
• 13:15 US Capacity Utilization Rate. Estimate 79.4%
• 13:15 US Industrial Production. Estimate 0.4%
• 13:55 US Preliminary UoM Consumer Sentiment. Estimate 78.2 points
• 13:55 US Preliminary UoM Inflation Expectations

*Key releases are highlighted in bold

*All release times are GMT

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