USD/CAD – Pair Continues to Drift with Little Movement

USD/CAD continues to show little movement, as the pair trades around the 0.9860 line. It has been an uneventful week so far for the pair, which has been unable to break out of narrow range trading. In economic news, Canadian Building Permits plunged, posting its worst performance in over two years. The Canadian New Housing Price Index showed little change, with a very slight gain. South of the border, US Unemployment figures fell below expectations for the second straight release, dampening hopes of better employment numbers. There are a host of other US releases later on Thursday.

Last week, the markets breathed easier as the fiscal cliff crisis in the US was averted, with no time remaining on the clock. 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, the result would be the default of the US government, 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.

In economic releases, Canadian data was a deep disappointment, with Building Permits plunging by 17.9%. This was the sharpest drop by the key construction indicator since June 2011. The dismal reading is sure to raise concerns about the health of the Canadian housing market. In the other Canadian release, the New Housing Price Index posted a very modest gain of 0.1%. This was a notch below the estimate of 0.2%. Despite the disappointing data, Canadian fundamentals still remain strong, and the Canadian economy remains in excellent shape compared with many other Western countries. The IMF and OECD have both predicted that Canada will continue to be among the strongest growing economies in the G-7 in 2013.

In the US, the news was not good either, as Unemployment Claims continues 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. Traders should also note that European Central Bank and the Bank of England maintained the current levels of interest rates, 0.75% and 0.50% respectively.

USD/CAD for Thursday, Jan 10, 2013

Jan 10 at 14:25

0.9864 H: 0.9881 L: 0.9850

USD/CAD Technical

S3 S2 S1 R1 R2 R3
0.9767 0.9812 0.9845 0.9909 0.9943 1.00

USD/CAD is showing little change, as the immediate support and resistance lines (S1 and R1 above) remain in place. The line of 0.9909 continues to provide resistance, and has not been tested since last week. We encounter stronger resistance at 0.9943. On the downside, 0.9845 continues to provide the pair with support. This line has seen a lot of activity in January, but is remains intact. The next support level is 0.9812.

• Current range: 0.9845 to 0.9909.

Further levels in both directions:
• Below: 0.9845, 0.9812, 0.9767, 0.9625 and 0.9526.
• Above: 0.9909, 0.9943, 1.00, 1.0041, 1.0157 and 1.0252.

OANDA’s Open Position Ratios

The USD/CAD ratio has not shown any movement, and this is reflected in the very quiet trading we are seeing with the pair. Long positions continue to make up the majority of open positions. With USD/CAD unable to sustain a drive in either direction, we are unlikely to see much movement in the ratio.
Last week, USD/CAD was quite busy, as the Canadian dollar took advantage of broad US dollar weakening. The tone has changed this week, as the pair has been exceptionally quiet. Weak releases out of both the US and Canada have not had an impact on the pair, and we could see the pair continue to drift.

USD/CAD Fundamentals

• 13:30 Canadian Building Permits. Estimate 2.4%. Actual -17.9%
• 13:30 Canadian NHPI. Estimate 0.2%. Actual 0.1%
• 13:30 US Unemployment Claims. Estimate 361K. Actual 371K
• 15:00 US Wholesale Inventories. Estimate 0.2%
• 15:30 US Natural Gas Storage. Estimate -185B
• 18:00 US 30-year Bond Auction.
• 18:10 US FOMC Member Esther George Speaks
• 19:00 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.

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.