USD/CAD – US Dollar Recovers From Losses Following Fed Statement

The US dollar lost ground against the Canadian dollar on Wednesday, following the surprise announcement by the Federal Reserve that it would not begin tapering QE. However, the US dollar quickly recovered, thanks to some solid releases on Thursday, highlighted by Unemployment Claims. USD/CAD is trading in the high-1.02 range in Friday’s European session. In Canada, Wholesales rebounded nicely with a strong gain in August. On Friday, Canada releases Core CPI, a key release. There are no economic releases out of the US, but the markets will be keeping a close eye as several Federal Reserve policymakers will be speaking, including FOMC Member James Bullard, who will address an event in New York City.

The markets continue to try and recover their composure after the US Federal Reserve stunned the markets in deciding not to taper QE at its policy meeting on Wednesday. Most analysts had expected the Fed to announce a scaling down of the present bond-buying program of $85 billion/month by as much as $15 billion/month. However, the Fed decided to stay the QE course for now, stating that the US economic data was not strong enough to warrant QE tapering at this time. The Fed also downgraded its forecast for the economy, estimating GDP growth for 2013 at 2.0-2.3%, down from 2.3-2.6% in an earlier forecast. It also lowered its outlook for 2014 from 2.9-3.1%, down from 3.0-3.5%.

Overshadowed by the FOMC Statement were some excellent US releases on Thursday. Unemployment Claims came in at 309 thousand, well below the estimate of 331 thousand. Existing Home Sales rose to 5.48 million, crushing the estimate of 5.27 million, and posting its best level in over three years. The Philly Fed Manufacturing Index rocketed from 9.3 to 22.3 points, its best showing since May 2011. Perhaps if we’d seen this kinds of numbers a week or two ago, the Fed might have introduced QE tapering. These strong numbers helped the US dollar wipe out the losses it sustained on Wednesday.

Canadian releases have looked sharp this week, but the Canadian dollar remains under pressure from its US counterpart. Both Foreign Securities Purchases and Manufacturing Sales posted strong gains in August, rebounding strongly from weak readings in July. On Thursday, Wholesale Sales continued this trend, recording a gain of 1.5% in August after a decline of -2.8% in July. This beat the estimate of 1.1%. If Canadian inflation numbers impress the markets, we could see the Canadian dollar gain some ground.

USD/CAD for Friday, September 20, 2013

USD/CAD 1.0294 H: 1.0301 L: 1.0263

USD/CAD Technical

• USD/CAD is showing little movement in Friday trading, as the proximate support and resistance levels (S1 and R1 above) remain intact.
• The pair continues to face weak resistance at 1.0337. This line could break if the US dollar continues its upward trend. This is followed by a strong resistance line at 1.0442.
• The pair is testing support at 1.0282. Will this line hold steady? This is followed by a support line at 1.0224, which was briefly breached on Thursday.
• Current range: 1.0282 to 1.0337

Further levels in both directions:

• Below: 1.0282, 1.0224, 1.0158 and 1.0068
• Above 1.0337, 1.0442, 1.0502, 1.0573, 1.0652 and 1.0758

OANDA’s Open Positions Ratio

USD/CAD ratio is pointing to short positions in Friday trading. This is not reflected in the current movement of the pair, as the US dollar has posted modest gains against the Canadian currency. The ratio is currently made up of a strong majority of long positions, after a long stretch of a majority of short positions. This is indicative of a strong trader bias towards the US dollar posting gains at the expense of the loonie.

USD/CAD has had a busy week and finds itself trading close to the 1.03 line. We could see some increased activity on Friday, as Canada releases inflation data and several US Federal Reserve policymakers deliver remarks later in the day.

USD/CAD Fundamentals

• 12:30 Canadian Core CPI. Estimate 0.1%.  
• 12:30 Canadian CPI. Estimate 0.1%.
• 16:30 US FOMC Member Esther George Speaks.
• 16:40 US FOMC Member Daniel Tarullo Speaks.
• 16:55 US FOMC Member James Bullard Speaks.

*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.