USD/CAD – Markets Keep Close Eye on Fed Meeting

USD/CAD is steady ahead of a key Federal Reserve monetary policy meeting on Tuesday and Wednesday. The pair was trading in the 1.0060 range. In the US, economic releases continue to paint a mixed picture. Durable Goods Orders data was positive, but Pending Homes Sales dropped sharply. Today’s key release is US CB Consumer Confidence. There are no Canadian releases on Tuesday.

US releases continue to paint a mixed picture of the US economy. Core Durable Goods Orders posted a lower gain than in November. However, the rise of 1.3% easily beat the estimate of 0.8%. Durable Goods Orders looked even better, jumping 4.6%. This crushed the estimate of a 1.8% gain. The markets were pleased with the strong manufacturing data, but the housing numbers that followed were a big disappointment. Last week, New Home Sales dipped to 369 thousand units, way below the estimate of 387 thousand. This shocked the markets, which had anticipated a modest gain of 0.5%. Pending Home Sales fared no better, plunging by 4.3%. This was the indicator’s worst showing since last May. The two key housing indicators points to weakness in the US housing industry, a critical component for economic growth. The bumpy US recovery will continue to limp along if these numbers don’t improve soon.

There was a major development as the Moody’s credit rating agency downgraded the long-term ratings of six Canadian banks. All of the downgrades were by one notch, with a stable outlook. Moody’s cited concern over the banks’ vulnerability to high levels of consumer debt and the rising house prices. However, the debt markets did not react to the news, and USD/CAD showed little change. This would seem indicate that investor confidence in the Canadian banking sector remains high, despite the warnings from Moody’s.

The markets will be keeping a close eye on developments in Washington, as the Federal Reserve holds a two-day policy meeting. The Fed has not been in the headlines lately, but is busy at work, as it increased its purchases of securities in January from $40 billion to $85 billion. This has pushed the Fed’s balance sheet to a record $3 trillion. Despite these measures, the US recovery remains slow, and unemployment is still high at 7.8%. The markets will be paying close attention to the Fed’s take on the economy, with the markets hoping to hear a hint about when the Fed might end its current round of QE. Minutes from the most recent FOMC pointed to members being divided between those in favor of ending QE in mid-2013, versus those who wish to continue it to a later date. Any unexpected announcements from the Fed meeting could affect the movement of USD/CAD.

USD/CAD for Tuesday, Jan 29, 2013

USD/CAD January 29 at 14:35 GMT

1.0046 H: 1.0067 L: 1.0045

USD/CAD Technical

USD/CAD continues to trade in the mid-1.00 range. The pair has been unable to break through resistance at the round  number of 1.01, despite several attempts. There is followed by resistance at 1.0157. On the downside, 1.0041 is under pressure from the pair. The is strong support at 1.0003, which is protecting the parity level.

Current range: 1.0041 to 1.01.

Further levels in both directions:

• Below: 1.0041, 1.0003, 0.9954, 0.9898, 0.9833, 0.9809 and 0.9767.
• Above: 1.01, 1.0157, 1.0207, 1.0286, 1.0365 and 1.0443.

OANDA’s Open Position Ratios

The USD/CAD ratio continues to show movement towards short positions. The currency pair has moved slightly lower, but it remains to be seen if this downward move will continue. Most positions in the ratio remain short, indicating an expectation among most traders that USD will move lower.

The recent rally by the greenback has leveled off, as the pair continues to trade in the mid-1.00 range. We could see some movement from USD/CAD if there are any interesting developments from the Federal Reserve meeting.

USD/CAD Fundamentals

• 14:00 US S&P/CS Composite-20 HPI. Estimate. 5.5%.  Actual 5.5%.
• 15:00 US CB Consumer Confidence. Estimate 64.8 points.

*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.