USD/CAD – US Dollar Remains Strong in Thin Holiday Trading

USD/CAD is starting off the week at high levels. The pair is trading in the low-1.05 range at the start of the North American session on Monday. On Friday, Canadian GDP dipped from 0.2% to 0.1%, matching expectations. In the US, Chicago PMI dropped sharply, but UoM Consumer Sentiment beat the estimate. Today’s highlight is US ISM Manufacturing PMI. The Canadian markets are closed on Monday for a national holiday, so there are no Canadian releases.

The markets may have become accustomed to seeing mixed numbers out of the US, but last week’s releases were mostly solid, helping to boost market confidence and the US dollar. Manufacturing, consumer confidence and housing numbers all beat their estimates. Unemployment Claims bounced back after a poor release the week before, and almost matched the estimate. Although GDP fell short of the estimate, the dollar remained strong, as the indicator pointed to respectable growth by the US economy. These solid numbers are particularly encouraging as they come from a wide range of economic sectors. Further strong numbers out of the US could be an indication that the recovery is gaining steam.

There have been some conflicting signals lately out of the US Federal Reserve concerning quantitative easing. The US dollar surged after Federal Reserve Chair Bernard Bernanke said that the Fed was planning to scale down QE. However, US (and global) stock markets fell sharply on the news, and the Fed found itself trying to contain the damage and calm the nervous markets. Dallas Fed President Richard Fisher declared that “tapering” should not be confused with “tightening” and said that the Fed was not exiting from its accommodative policy action just yet. Minneapolis Fed President Naraya Kocherlakota reiterated that the Fed was continuing with an expansionary monetary policy event if QE was terminated, and said that it was a misperception to assume that the Federal Reserve had turned more hawkish. One can be excused for dismissing these statements as little more than linguistic acrobatics, and it is questionable if the markets will be reassured by these statements from the Fed, which are clearly aimed at damage control and reassuring nervous investors. Talk of tapering QE has been a positive factor for the US dollar, which remains strong against the major currencies.

Global growth has been sputtering for some time, and there was more bad news, as an HSBC report downgraded its forecast for global growth. In its report, HSBC said that it had lowered its forecast due to the US Federal Reserve decision to cut QE, as well as a sharp slowdown in China and other emerging  countries such as India and Brazil. The report revised China’s GDP from 8.2% to 7.4% for 2013 and from 8.4% to 7.4% for next year. Weaker global growth will likely have a strong impact on countries which heavily depend on exports, such as Japan, Canada and Australia, and this could have a strong negative impact on these countries’ currencies.

USD/CAD for Monday, July 1, 2013

USD/CAD 1.0522 H: 1.0530 L: 1.0498

USD/CAD Technical

USD/CAD is very quiet as we start the new trading week. The pair continues to face strong resistance at 1.0652. This line has not been tested since October 2011. On the downside, the pair is receiving support at 1.0502. This remains a weak line, and could see further activity. The next support level is at 1.0442.

• Current range: 1.0502 to 1.0652

Further levels in both directions:

• Below: 1.0502, 1.0442, 1.0337, 1.0282, 1.0229 and 1.0157
• Above: 1.0652, 1.0705, 1.0780 and 1.0853

OANDA’s Open Positions Ratio

USD/CAD ratio is showing movement towards short positions in Monday trading. This is not reflected in the movement of the pair, which is showing very little movement. Short positions continue to enjoy a strong majority of open positions, indicating a strong trader bias towards the pair continuing to move in a downward direction.

USD/CAD continues to trade close to the 1.05 line, and we can expect Monday to be marked by thin trading, as the Canadian markets are closed for a holiday.

USD/CAD Fundamentals

• 13:00 US Final Manufacturing PMI. Estimate 52.4 points.
• 14:00 US ISM Manufacturing PMI. Estimate 50.6 points.
• 14:00 US ISM Manufacturing Prices. Estimate 50.5 points.
• 14:00 US Construction Spending. Estimate 0.6%.

*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.