USD/CAD is showing little change on Wednesday. Early in the North American session, the pair is trading slightly below the 1.03 level. This line continues to be the center of attention, as the Canadian dollar tries to consolidate Tuesday’s gains and stay in 1.02 territory. There are three releases out of the US on Wednesday, highlighted by US New Home Sales. There are no Canadian releases for the remainder of the week. On Tuesday, US releases were disappointing, as HPI missed the estimate, and the Richmond Manufacturing Index slumped badly, posting a six-month low.
The Canadian dollar has been chipping away against its US cousin recently, and got a boost on Tuesday as Canadian retail sales numbers were excellent. Core Retail Sales, a key release and market-mover, jumped 1.2%. The red-hot figure shocked the markets, which had expected a negligible gain of 1.2%. Retail Sales kept pace, climbing 1.9%, which blew past the estimate of 0.4%. Both indicators recorded their highest levels since May 2010. The Canadian dollar improved on the news, as USD/CAD dropped below the 1.03 line for the first time since late-June.
US releases have not enjoyed a good week. Existing Home Sales, a major release, slid from 5.18 million to 5.08 million. Clearly, the markets were expecting too much, with an estimate of 5.27 million. The markets will be hoping for better news from New Home Sales on Wednesday. This indicator has now improved for the past three consecutive releases. The housing industry is a vital component of economic growth, and both of these housing releases are market-movers. On Tuesday, the Richmond Manufacturing Index plunged from +8 points to -11 points, its worst reading since September 2012. Last week, the Empire State Manufacturing Index and Philly Fed Manufacturing Index both looked sharp, and the markets had expected the Richmond Manufacturing Index to follow suit. The weak release is an indication that the manufacturing sector, which has been a sore spot in the US recovery, continues to show weakness.
Will the Federal Reserve step in and scale down QE? This is the magic question facing the markets. Despite the zigzagging we’ve seen on this issue from the Fed, there is a strong likelihood that this will take place before the end of 2013, barring a major downturn by the US economy. There is growing speculation that the Fed could take action in September. Appearing on Capitol Hill last week, Fed chair Bernard Bernanke was careful not to get pinned down with any specific deadlines, and instead said that stronger growth and lower unemployment were the key factors to any action over QE. The problem with this approach is the markets remain in the dark, and every strong US release fuels expectation about QE tapering, while a weak release does the opposite. This of course, contributes to market instability, as we’ve seen in recent months with the US dollar. The G20 seemed to have this issue in mind when it issued a statement that member countries had agreed that future monetary policy moves would be “carefully calibrated and clearly communicated”. Whether the Fed will suddenly show its cards is doubtful, especially in light of Bernanke’s vague and rather dull performance in front of Congress last week.
USD/CAD for Wednesday, July 24, 2013
USD/CAD 1.0294 H: 1.0313 L: 1.0263
USD/CAD continues to flirt with the 1.03 level in Wednesday trading. The pair crossed above this level in the Asian session, but retracted back into 1.02 territory in the European session. The pair is facing resistance at 1.0337. This line is not strong, and could face pressure if the loonie gives up some of its gains. This is followed by strong resistance at 1.0442. On the downside, the pair is putting strong pressure on 1.0282. This line was breached earlier today, and could see more action. This is followed by a support level at 1.0229.
- Current range: 1.0282 to 1.0337
Further levels in both directions:
- Below: 1.0282, 1.0229, 1.0157, 1.0062 and 1.00
- Above: 1.0337, 1.0442, 1.0502, 1.0573, 1.0652
OANDA’s Open Positions Ratio
USD/CAD ratio has been very quiet this week, but that changed on Wednesday, as we are seeing movement towards long positions. This is not reflected in the pair’s current movement, as we’re seeing little movement from the pair. Long positions enjoy a majority, indicating that trader sentiment is biased towards the US dollar moving higher.
USD/CAD continues to hover close to the 1.03 line. The Canadian dollar posted gains on Tuesday with strong Canadian retail numbers, and the US dollar will try to repay the favor with a solid housing release later in the day. Barring an unexpected reading, we could see the pair continue to trade close to the 1.03 line.
- 13:00 US Flash Manufacturing PMI. Estimate 52.5 points. Actual 53.2 points.
- 14:00 US New Home Sales. Estimate 482K.
- 14:30 US Crude Oil Inventories. Estimate -2.5M.
*Key releases are highlighted in bold
*All release times are GMT