USD/ CAD – Almost Unchanged as Rangebound Trading Continues

For traders looking for some excitement and volatility, USD/CAD is not your ticket, so far this week. The pair continues to trade in the 1.0260 range, showing little appetite to break out of this comfort zone. The paucity of key releases so far this week has helped contribute to the drifting by the pair. Today’s highlight was US retail sales numbers. The markets were pleased with the readings, as both Retail Sales and Core Retail Sales came in around 1.0%, beating expectations.

Although USD/CAD is going through a quiet phase, this is certainly not the case across the oceans, with plenty of developments affecting the yen and the euro. In Japan, the markets are bracing for further monetary easing measures from the Bank of Japan, which would likely push the Japanese currency to new lows.  These sentiments were reinforced following tough comments from the incoming BOJ head. During confirmation hearings, Haruhiko Kuroda declared that he would do “whatever it takes” to beat deflation and reach the government’s inflation target of 2.0%. The incoming governor reiterated that he is confident that an effective monetary policy could defeat deflation, which continues to weigh heavily on the Japanese economy. Kuroda noted that the current amount of asset buying by the BOJ will not achieve the 2.0% inflation goal. There are media reports that Kuroda may start implementing additional easing immediately upon assuming office next week, rather than wait until the BOJ’s next policy meeting in April. There were no surprises as the BOJ released the minutes of its February meeting, at which the central bank maintained its monetary policy. Some members stated they were in favor of buying Japanese Government Bonds with longer remaining maturities if additional monetary easing is needed in the future.

In the Eurozone, ECB head Mario Draghi continues to sound optimistic about the Eurozone economy, but the Fitch ratings agency isn’t buying. On Friday, Fitch downgraded the debts of Italy and Spain, as well as three other Eurozone countries. These downgrades could result in higher borrowing costs for Spain and Italy, which would put further pressure on their struggling economies. Fitch also placed a negative outlook on all five members, meaning that there is greater than 50 percent chance of another downgrade in the next two years. The downgrade is more bad news for Italy, which is struggling with a political crisis and economic malaise. The Eurozone’s third largest economy crisis is struggling with high unemployment, weak growth and a massive debt of EUR 1.9 trillion. With Italy, Spain and France all struggling, and Germany’s economy producing mixed numbers, the markets can be forgiven for not sharing Draghi’s optimism.

In the US, there are hopes that the recovery is strengthening, following excellent employment numbers last week. Employment Change shot higher, and the Unemployment Rate dropped to 7.7%, its lowest level since 2008. The stronger numbers have led to speculation that the Fed might end the current round of QE, which involves the purchase of $85 billion in assets each month, earlier than expected. In one possible scenario, the Fed would let mature the trillions of dollars in securities they have purchased, rather than saturate the market with a huge amount of securities. The US economy has been bumpy, and has not responded all that well to the Fed’s massive purchase of assets. This “new exit” strategy could take place as early as June, and would be a dramatic shift in the Federal Reserve’s current monetary policy.

USD/CAD for Wednesday, March 13, 2013

1.0249 H: 1.0277 L: 1.0247

USD/CAD Technical 

USD/CAD continues to be boxed in the mid-1.02 range. , The pair is receiving support at 1.0229. This is a weak line, and could face pressure if the loonie gains any ground against the US dollar. There is stronger support at 1.0157. On the upside, 1.0282 is providing weak resistance. This is followed by a stronger line at 1.0361. 

• Current range: 1.0229 to 1.0282

Further levels in both directions:

• Below: 1.0229, 1.0157, 1.01, 1.0041 and 1.00
• Above: 1.0282, 1.0361, 1.0446, 1.0523 and 1.0642

OANDA’s Open Position Ratios

USD/CAD ratio has gone quiet, with little activity to report in the Wednesday session. This is reflected in the pair, which is marked by rangebound trading. Will the pair’s lack of movement continue?

The markets have not had much to go on this week as far as economic releases. There are no Canadian releases until Thursday, and Wednesday’s US retail sales numbers were the first major releases of the week. The US will release Unemployment Claims on Thursday, and if the reading is not in line with market expectations, we could see some volatility from the pair.

USD/CAD Fundamentals

• 12:30 US Core Retail Sales. Exp. 0.5%. Actual 1.0%.
• 12:30 US Retail Sales. Exp. 0.5%. Actual 1.1%.
• 12:30 US Import Prices. Exp. 0.5%. Actual 1.1%.
• 14:00 US Business Inventories. Exp. 0.5%
• 14:30 US Crude Oil Inventories. Exp. 2.3M
• 17:00 US 10-year Bond Auction
• 18:00 US Federal Budget Balance. Exp. -200.0B

*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.