USD/CAD – Greenback Edges Towards Parity Line

USD/CAD continues to trade close to the parity line, as the US dollar has moved slightly higher. The pair has been boxed in a narrow range throughout the week, unable to sustain any momentum in either direction. Canadian releases are back in action on Wednesday, as the markets wait for the release of Ivey PMI. In the US, ISM Non-Manufacturing PMI was a non-event, as the key index matched the forecast. Today’s only US release is US Crude Oil Inventories.

USD/CAD has had a quiet week, but this could change as Canada releases some key data for the first time this week. This starts off with Wednesday’s release of Ivey PMI. The index bounced back above the 50 level in January, beating the estimate. The markets are expecting further improvement in today’s release. Analysts will be closely watching Canadian employment data, which comes out on Thursday. The markets are keeping expectations low, despite outstanding numbers in the past two releases. There is a widely-held view that these strong numbers do not conform with other key indicators, which point to a slowing down of the Canadian economy. For example, Core Retail Sales numbers were below expectations, while January’s Building Permits was a disaster, plunging over 17%. As well, there was a sharp decline in the employment index of January’s Ivey PMI. If Canadian employment numbers sag this time around, this will raise concerns about the strength of the economy, and we could see the loonie lose some ground.

The United States is Canada’s most important trading partner, and as the saying goes, when the US sneezes, Canada gets a cold. Therefore, the mixed economic indicators that we continue to see out of the US is of great concern to Canada as well, and the lack of clarity in the markets as to the extent of the US recovery can have a major impact on the movement of USD/CAD. In the US, the most recent GDP release was a major disappointment, pointing to a contracting economy for the first time since 2009. Employment numbers have also cooled, and the US Unemployment Rate edged up to 7.9%. On the bright side, consumer sentiment and manufacturing data have been solid. With only a handful of key US releases this week, each one will find itself under the market microscope as the markets try to get a handle on the health of the US economy.

USD/CAD for Wednesday, February 6, 2013

USD/CAD February 5 at 14:25 GMT

0.9982 H: 0.9982 L: 0.9954

USD/CAD Technical 

USD/CAD continues to trade slightly below the parity line. The pair remains boxed in a narrow range, as the proximate support and resistance lines remain intact (S1 and R1 above). The pair faces continues to face resistance just above parity, at 1.0003. This is a weak line, and could face pressure if the greenback is able to sustain any upward momentum. This is followed by resistance at 1.0041. On the downside, the pair continues to receive support at 0.9954. The pair touched this line earlier today, but quickly moved back higher. There is stronger support at 0.9898.

Current range: 99.54 to 1.0003.

Further levels in both directions:

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

OANDA’s Open Position Ratios

USD/CAD ratio continues to show sustained movement towards long positions. The pair is also moving upwards, but this move has been very modest, as the US dollar is back within sight of parity. The current movement in the ratio and the fact that a majority of the open positions are long, points to a bias towards a further upward move by the US dollar against its Canadian counterpart.

It’s been a very quiet week for USD/CAD. The pair continues to stick close to the parity line, as the US dollar has edged higher. If it is able sustain this momentum, we could see the greenback break through the parity line. With a host of key Canadian and US releases due during the rest of the week, this could result in some volatility from the pair.

USD/CAD Fundamentals

• 15:30 Canadian Ivey PMI. Estimate 53.7 points.
• 15:30 US Crude Oil Inventories. Estimate 2.7M.

*Key releases are highlighted in bold

*All release times are GMT

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