USD/CAD – Loonie Edges Up, Tests 1.01 Level

The Canadian dollar continues to edge higher against its US cousin. Early in Tuesday’s North American session, the pair was trading just above the 1.01 level. The currency markets are marked by cautious trading, as speculation as increased that the ECB will lower interest rates on Thursday, thanks to continuing sluggish economic data out of the Eurozone. In economic news, US Pending Home Sales brought some much-needed relief, beating market expectations. Today’s key US event is CB Consumer Confidence. In Canada, GDP rose slightly to 0.3%, good enough to beat the forecast of 0.2%.

There was finally some good news out of the US, as Pending Home Sales beat expectations. The key housing indicator bounced back from a decline last week, and posted a gain of 1.5%. The estimate stood at 1.1%. The markets were pleased, especially following the disappointing US GDP on Friday. With a long string of weak releases for the past month, the GDP reading appeared to underscore the recent disappointing data. The key indicator improved sharply, climbing from -0.1% to 2.5%. However, the markets had anticipated a gain of 3.1%. The weaker than expected reading from one of the most important economic indicators should serve as a wakeup call that the US economy is hitting turbulence, which could affect the US dollar.

In the Eurozone, there is plenty of news to keep the markets busy. After weeks of a political deadlock, Italy has finally formed a government. The impasse, which had paralyzed the Eurozone’s third largest economy and had kept the markets jittery, was broken as Enrico Letta was nominated as prime minister last week. Letta’s Democratic Party does not have a parliamentary majority, so the coalition he has cobbled together may not last for long. Letta is considered a moderate and is liked within the Eurozone. The new government will be faced with an economy mired in recession and a sour electorate that is fed up with austerity measures. However, the markets were pleased that there is finally a government in place, after a prolonged period of uncertainty and instability.

Will we see a rate cut from the ECB later this week? The Eurozone continues to stagnate with poor releases, and has its hands full with crises in Cyprus (bailout fiasco) and Italy (political gridlock). Speculation that the ECB will take action is growing. Goldman Sachs released a statement on Thursday, stating that it expects a 0.25% cut when the ECB meets this week. The prestigious firm also downgraded Eurozone growth for 2013, from -0.5% to -0.7%. The ECB will set rates on Thursday, but the possibility of a rate cut will likely to preoccupy the markets during the course of the week.

USD/CAD for Tuesday April 30, 2013

1.0106 H: 1.0124 L: 10104

USD/CAD Technical

USD/CAD continues to trade quietly in Tuesday trading. The pair is facing resistance at 1.0157. This is followed by resistance at 1.0282. On the downside, the pair is testing the 1.01 line, and we could see this line fall if the US dollar loses more ground. The next support level is at 1.0041, protecting the parity line.

Current range: 1.01 to 1.0157

Further levels in both directions:

• Below: 1.01, 1.0041, 1.00 and 0.9930.
• Above: 1.0157, 1.0229, 1.0282 and 1.0361

OANDA’s Open Position Ratios

USD/CAD continues to show movement towards long positions. We are not seeing this currently from the pair, which is very quiet. However, this activity could be an early sign of a breakout by the pair in an upwards direction. Long positions now have a slight majority of the open positions in the ratio, indicating a bias towards the US dollar improving against the loonie.

The Canadian dollar has taken advantage of some broad weakness by the greenback, and has posted some gains this week. We can expect the pair to continue trading close to the 1.01 line, barring an unexpected reading from today’s key US event, which is Consumer Confidence.

USD/CAD Fundamentals

• 12:30 Canadian GDP. Estimate 0.2%. Actual 0.3%.
• 12:30 Canadian RMPI. Estimate 0.5%. Actual -1.7%.
• 12:30 Canadian IPPI. Estimate 0.1%. Actual 0.1%.
• 12:30 US Employment Cost Index. Estimate 0.5%. Actual 0.3%.
• 13:00 US S&P/CS Composite-20 HPI. Estimate 9.1%. Actual 9.3%.
• 13:45 US Chicago PMI. Estimate 52.5 points.
• 14:00 US CB Consumer Confidence. Estimate 61.4 points.

*Key releases are highlighted in bold

*All release times are GMT

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