USD/CAD – Higher as Fed Signals QE Reduction

The US dollar continues to make inroads at the expense of the Canadian currency. The greenback is broadly stronger, thanks to comments by Fed chief Bernard Bernanke that the Fed will likely scale back QE sometime this year. USD/CAD is on the move, and is trading in the mid-1.03 early in the North American session on Thursday. The Canadian dollar has coughed up about two cents this week to the surging US dollar. In economic news, US Unemployment Claims was a disappointment, rising to 354 thousand last week. This was well above the estimate of 343 thousand. US Flash Manufacturing PMI came in slightly shy of the estimate. The markets are waiting for two additional key releases – Existing Homes and the Philly Fed Manufacturing Index. There are no Canadian releases on Thursday.

There was plenty of movement in the currency markets on Wednesday, after Federal Reserve chair Bernard Bernanke said that QE would likely be scaled down in 2013, and could be terminated in 2014, if the economy continues to improve. The Fed said it expects the U.S. economy to grow between 2.3% and 2.6% this year, and unemployment should fall to between 6.5% and 6.8% by the end of 2014. This means that if the US economy shows stronger growth and unemployment falls, there is a strong likelihood that the Fed will scale down QE. It should be remembered that the Federal Reserve is not making any changes at present to QE, which involves bond purchases of $85 billion each month by the Fed. Bernanke’s comments boosted the dollar against the major currencies, since winding up QE is dollar-positive. 

G8 summits are often little more than photo-ops and an opportunity for the leaders to take a short break from the workload back home. However, this year’s G8 meeting in Northern Ireland served more than the usual fare, as the G8 leaders used the occasion to announce the start of negotiations on a free trade agreement between the European Union and the United States. The stakes are very high – the EU and US produce 50% of the global output, and a third of world trade. The deal would be the largest bilateral trade pact ever, and could add up to $100 billion to the economies of each partner. Negotiations will get underway in Washington next month, with a deal expected to be signed by the end of 2014. Canada has a free trade agreement with the US, and is presently negotiating a pact with the EU. Canada will be certainly monitoring the talks between the US and the EU.

USD/CAD for Thursday, June 20, 2013

USD/CAD 1.0352 H: 1.0379 L: 1.0272

USD/CAD Technical

USD/CAD continues to post gains, as it has all week long. The pair is receiving support at 1.0337. This is a weak line and could face pressure if the pair moves lower. The next support level is at the round number of 1.0282. On the upside, the pair faces resistance at 1.0442.  This line has remained in place since June 2012. The next resistance line is at 1.0502.

• Current range: 1.0337 to 1.0442

Further levels in both directions:

• Below: 1.0337, 1.0282, 1.0229, 1.0157 and 1.01
• Above: 1.0442, 1.0502, 1.0652 and 1.0705

OANDA’s Open Positions Ratio

USD/CAD ratio is back in action in the Thursday session. The ratio is pointing to movement towards short positions. This is to be expected, as the pair’s strong upward push has resulted in a large number of long positions being covered, leaving a larger percentage of open short positions. The ratio currently has a large majority of short positions, indicating a strong bias towards the pair reversing direction and moving upwards.

The US dollar is broadly stronger after the Fed signaled it plans to tighten QE, and the loonie has sustained sharp losses, as have the major currencies. We could see some further activity from the pair as the US releases key housing and manufacturing data later today.

USD/CAD Fundamentals

• 12:30 US Unemployment Claims. Estimate 343K. Actual 354K.
• 13:00 US Flash Manufacturing PMI. Estimate 52.5 points. Actual 52.2 points.
• 14:00 US Existing Home Sales. Estimate 5.01M.
• 14:00 US Philly Fed Manufacturing Index. Estimate -0.6 points.
• 14:00 US CB Leading Index. Estimate 0.2%.
• 14:30 US Natural Gas Storage. Estimate 89B.

*Key releases are highlighted in bold

*All release times are GMT

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