USD/CAD – Higher after Strong Canada and US Releases

USD/CAD has moved higher, and the pair has now pushed above the 0.99 line. On Thursday, there were a host of strong releases out of both Canada and the US. In Canada Core Retail Sales and Retail Sales both looked sharp, coming in above the estimate.

In the US, Final GDP climbed 3.1%, which was higher than expected, and Existing Home Sales posted its best performance since May 2011. This release is particularly encouraging, as it follows other strong housing numbers. The US housing sector, which has been a sore spot in the economy for quite some time, is showing signs of improvement. The Philly Fed Manufacturing Index, which had a terrible reading last month, roared back and climbed all the way to 8.2 points, an eight-month high. The one disappointing release was Unemployment Claims, which came in at 361 thousand new claims, slightly higher than the estimate of 358K. All in all, however, the data points to an improving US economy as the recovery appears to be gaining traction.

Although US fundamentals are certainly a cause of optimism, there is serious trouble brewing on the horizon, as the fiscal cliff clock continues to tick down. Fiscal cliff refers to the host of tax hikes and spending cuts which automatically kick in on January 1, 2013, unless US lawmakers take action. The combination of lower spending and higher taxes would do wonders for the US deficit, but could severely weaken the fragile US recovery, and push the economy into a recession. Congress has taken a break for the Christmas holidays, and will not reconvene until December 27, which is very close to the deadline.

The Republicans and Democrats continue to dig in and blame each other for the crisis, but recent polls indicate that a majority of Americans think that the Republicans need to be more flexible in their positions, especially regarding tax hikes on the wealthy. The Republicans are well aware of public sentiment, and have softened their positions and their rhetoric.

However, there is still a significant gap between the sides as far as tax hikes and the extent of spending cuts to Federal programs. The Democrats strongly oppose such cuts, and have the support of the public when it comes to critical programs like Medicare. The political maneuvering between the two sides continues, as the Republicans tried to pass a bill known as “Plan B” which would have raised taxes only on those earning more than $1 million annually, but they did not have enough support for this initiative. The markets are getting increasingly nervous, and we could see more volatility in the currency markets if the impasse continues. In Friday’s releases, Canada will publish Core CPI, GDP and CPI. There are seven releases out of the US, highlighted by Core Durable Goods Orders.

USD/CAD for Friday, Dec 21, 2012

Dec 21 at 11:10 GMT

0.9904 H: 0.9914 L: 0.9876

USD/CAD Technical

S3 S2 S1 R1 R2 R3
0.9767 0.9812 0.9845 0.9909 1.00 1.0040

USD/CAD continues to push higher, and the pair is testing resistance at 99.09. If this line falls, we could see more gains for the US dollar, with no significant resistance until the critical parity line. On the downside, 0.9845 continues to providing support. This line has strengthened as the pair trades at higher levels.
• Current range: 0.9845 to 0.9909.
Further levels in both directions:
• Below: 0.9845, 0.9812, 0.9767, 0.9625, 0.9526 and 0.9445.
• Above: 0.9909, 1.00, 1.0041, 1.0157 and 1.0252.

OANDA’s Open Position Ratios
The ratio for USD/CAD remains biased in favor of long positions, and this sentiment may be rewarded as the loonie continues to weaken. Following an impressive run by the Canadian dollar, this week has seen a correction, and this trend could continue. The fiscal cliff impasse is closely connected to the pair and will continue to have an important impact on its movement.
USD/CAD has edged higher, and has now pushed above the 0.99 line. With key US data pointing upwards, we could see the US dollar continue to improve at the expense of its Canadian counterpart.

USD/CAD Fundamentals
• 13:30 Canadian Core CPI. Estimate 0.2%.
• 13:30 Canadian GDP. Estimate 0.1%.
• 13:30 Canadian CPI. Estimate 0.0%.
• 13:30 US Core Durable Goods Orders. Estimate -0.2%.
• 13:30 US Core PCE Price Index. Estimate 0.1%.
• 13:30 US Durable Goods Orders. Estimate 0.2%.
• 13:30 US Personal Spending. Estimate 0.4%.
• 13:30 US Personal Income. Estimate 0.3%.
• 14:55 US Revised UoM Consumer Sentiment. Estimate 74.9 points.
• 14:55 US Revised UoM Inflation Expectations.

*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.