USD/CAD – Steady as Markets Eye Italian Election

USD/CAD is showing little activity as we begin the new trading week. Last week ended with inflation and retail sales releases out of Canada. The news was not good, as the readings failed to meet market expectations. With only one fundamental release on Monday, the major event is the results of the Italian election, which are due to be released later on Monday. The US dollar gained over a cent against its Canadian counterpart last week, as USD/CAD trades in the low-1.02 range. Today’s sole Canadian release is a speech by BOC Governor Mark Carney in Toronto. There are no scheduled releases out of the US on Monday.

Friday’s Canadian releases were a big disappointment, as retail and inflation numbers were weak, and the loonie edged lower. Core CPI improved from the previous reading, posting a 0.1% gain. However, this was lower than the 0.2% forecast. CPI also rose 0.1%, below the estimate of 0.3%. Retail Sales numbers looked very weak, raising more red flags about consumer spending and the health of the Canadian economy. Core Retail Sales dropped 0.9%, its worst showing since June 2010. The weak reading surprised the markets, which had expected a modest gain of 0.1%. Retail Sales brought no relief, plunging 2.1%, its sharpest drop since February 2009. The market estimate stood at -0.3%. Analysts have been warning that the Canadian economy is running into strong turbulence, and traders can expect the shaky Canadian dollar to lose more ground if the markets are treated to more disappointing numbers.

The markets are eagerly awaiting preliminary results from the Italian parliamentary elections, which were held on Sunday and Monday. The election race has been tight, with center-left leader Pier-Luigi Bersani favored to win the most seats. Most analysts expect Bersani to forge a coalition with outgoing Prime Minister Mario Monti, if he is given the chance to do so. Former Prime Minister Silvio Berlusconi, known for his outspoken manner and his controversial style, has certainly made the election more colorful. However, the markets clearly prefer a strong showing by Bersani and Monti, who would likely continue current economic policy. Besides concerns that Berlusconi could do well at the polls, the markets are worried about a hang parliament, which could usher in a period of political uncertainty in Italy, at a time that the Italian economy is struggling and weighed down by tough austerity measures.

In the US, the Federal Reserve was again in the spotlight last week, following the release of the minutes of its most recent policy meeting. In the meeting, members raised the possibility of ending the current round of QE even before the US employment situation improves, due to concern about the negative effect that QE could have on the financial markets. The Fed has left QE open-ended, but has previously stated that it would not end before unemployment fell to 6.5%. Meanwhile, the markets are having a tough time measuring the extent of the US recovery, as US data continues to paint a mixed picture. Last week’s numbers pointed to more of the same. Unemployment Claims came in higher than forecast, disappointing the markets. Existing Home Sales managed to beat the estimate, but Housing Starts failed to meet expectations. The manufacturing sector continues to stumble, as the Philly Fed Manufacturing Index dropped sharply. Despite the lackluster fundamentals, the US dollar has been broadly higher against the major currencies, and enjoyed a strong week at the expense of the Canadian currency.

USD/CAD for Monday, Feb 25, 2013

USD/CAD Feb 24 at 14:05 GMT

1.0230 H: 1.0240 L: 1.0222

USD/CAD Technical

USD/CAD starts off the week in the low-1.02 range. The line of 1.0229 is currently under pressure. The pair is receiving stronger support at 1.0157. On the upside, the next resistance line is at 1.0308. This line has held steady since June 2012. The next line of resistance is at 1.0380.

• Current range: 1.0229 to 1.0308.

Further levels in both directions:

• Below: 1.0229, 1.0157, 1.01, 1.0041, 1.00 and 0.9940
• Above: 1.0308, 1.0380, 1.0446, 1.0523 and 1.0642

OANDA’s Open Position Ratios

With Monday’s North American session just underway, the USD/CAD ratio is quiet. The currency pair has also shown little movement so far on Monday, but if USD/CAD does show some movement, we can expect the ratio to show activity as well.

The US dollar enjoyed a strong week against the loonie, and is enjoying the view above the 1.02 level. Will the pair’s upward momentum continue? The markets may still react to the weak Canadians numbers from Friday, and we could see the US dollar continue to post gains.

USD/CAD Fundamentals

• 17:15 Bank of Canada Governor Mark Carney Speaks

*Key releases are highlighted in bold

*All release times are GMT

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