USD/CAD – Canadian Dollar Higher on Broad Greenback Weakness

USD/CAD finally broke out of recent rangebound trading, as the Canadian dollar posted gains against its US counterpart. The Canadian currency took advantage of some broad US dollar weakness, as the greenback lost ground against the euro and the British pound on Thursday. In the US, Unemployment Claims continues to look weak, as the key employment indicator failed to meet the estimate for the second straight reading The pair has not showed much movement over the course of the week, but this could change on Friday, as both the US and Canada release Trade Balance Figures.

The US dodged the fiscal cliff bullet last week, as Congress managed to craft together a compromise which all sides could agree to, albeit with some reluctance. However, the story is by no means over, and this recent battle, which grabbed the news headlines for several weeks, appears to have just been the first round. More battles are imminent, as the hard-fought fiscal cliff deal left two critical issues – the debt ceiling and spending cuts, for another day. Democrats and Republicans are likely to tangle in Congress at the end of February, as the country reaches the $16.4 trillion debt ceiling. If the debt ceiling is not raised (yet again), we could see the US government default on its debt, which undoubtedly would cause chaos in the markets. Republicans have vowed to condition raising the debt ceiling on deep spending cuts, which the Democrats strongly oppose. In March, the fiscal cliff could again rear its head, as $110 billion in spending cuts will kick in if Congress cannot agree on a new budget.

On Thursday, the Canadian dollar jumped on the currency bandwagon, and improved against the US dollar. The latter displayed broad weakness, following the decision by the European Central Bank to maintain interest rates at their current level of 0.75%. Although this move (or non-move) was widely expected, market sentiment rose after the announcement, for two reasons. First, the decision to stay the course was unanimous, and ECB President expressed his confidence in the Eurozone economy. Despite the serious challenges that the Eurozone is facing, notably the debt crisis, the ECB decided not to change its interest rate policy in order to bolster the Eurozone. Second, there was no indication from the ECB that it might resort to slashing rates in the near future.

In doing so, the ECB is sending a strong message to the markets that for the near future at least, it is likely to make do with unconventional monetary steps as it tries to help along the Eurozone economy. This vote of confidence in Europe gave a huge boost to the euro and pound, at the expense of the US dollar.

In economic news, Thursday’s main release out of the US was a big disappointment, as Unemployment Claims continued to look weak. For a second straight reading, the key indicator failed to meet the estimate, showing little change at 371 thousand claims. The markets had anticipated a better release, with an estimate of 361K. The weak numbers could hurt market sentiment and raise more doubts about the strength of the US economic recovery. Both the US and Canada will release Trade Balance numbers on Friday. The markets will be carefully watching, as an unexpected reading from either one could affect the movement of USD/CAD.

USD/CAD for Friday, Jan 11, 2013

Jan 11 at 15:05

0.9838 H: 0.9844 L: 0.9826

USD/CAD Technical

S3 S2 S1 R1 R2 R3
0.9625 0.9767 0.9812 0.9845 0.9909 0.9943

USD/CAD has broken out of narrow range trending, with a downward move. The pair is now trading around the 98.40 level. On the upside, 0.9845 is providing weak resistance. 0.9909 is the next resistance line. It has strengthened following the pair’s push downwards. The pair is receiving support at 0.9812. This line could face more pressure if the loonie continues to strengthen. 0.9767 is a stronger support line.

• Current range: 0.9812 to 0.9845.

Further levels in both directions:
• Below: 0.9812, 0.9767, 0.9625 and 0.9526.
• Above: 0.9845, 0.9909, 0.9943, 1.00, 1.0041 and 1.0157.

OANDA’s Open Position Ratios

It has been a quiet week for USD/CAD, and the ratio has not shown much movement either. However, we are now seeing a slight shift in favor of long positions. This bias could be an indication that the current downward trend will undergo a correction, and the US dollar will rebound from recent losses. In the meantime, the Canadian dollar continues to make inroads against the greenback.

The USD/CAD has finally broken out of narrow range trading, as the loonie has flexed some muscle. Can it sustain this drive? Both Canada and the US will release Trade Balance numbers later on Friday, and the results could impact on market sentiment and affect the movement of USD/CAD.

USD/CAD Fundamentals

• 13:30 Canadian Trade Balance. Estimate -0.3B.
• 13:30 US Trade Balance. Estimate -41.1B
• 13:30 US Import Prices. Estimate 0.1%
• 19:00 US Federal Budget Balance. Estimate -11.6B

*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.

Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental and macroeconomic analysis, Kenny Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in major online financial publications including, Seeking Alpha and FXStreet. Kenny has been a MarketPulse contributor since 2012.