USD/CAD – Testing 1.05 Ahead of US FOMC release

The Canadian dollar continues to post modest gains against its US counterpart, a trend we have seen throughout the week. In Wednesday trading, USD/CAD dipped below the 1.05 line in the European session, but has bounced back above this level. In the US, Wholesale Inventories and Crude Oil Inventories were well off their estimates. All eyes are on the Federal Reserve, which will release the minutes of the most recent FOMC policy meeting, which could shake up the markets. As well, the US 10-year bond auction will be held. Later on, Federal Reserve head Bernard Bernanke will speak at a conference in Cambridge Mass. There are no Canadian releases scheduled for Wednesday.

Canada has started the week with some positive releases. On Tuesday, it was the turn of Housing Starts, which easily beat expectations. The indicator posted a strong reading of 200 thousand new starts, identical to the June release. This was well above the estimate of 189 thousand, and points to an improving housing sector. On Monday, Building Permits recorded a healthy gain of 4.5%, which was well above the forecast of 2.6%. As well, the Bank of Canada released its quarterly Business Outlook Survey, which provides a snapshot of business sentiment about the Canadian economy. The report found that businesses remain wary about an uncertain economy, and are also concerned about slow growth south of the border. Business investment continues to grow slowly, which is weighing on the economy.

The International Monetary Fund released a report in which it upgraded Canadian growth in 2013 from 1.5% to 1.7%. However, the forecast for 2014 took the opposite direction, with a downgrade from 2.4% to 2.2%. The IMF is not optimistic about global growth, and is predicting a slowdown in emerging countries such as India and China. A particular sore spot is the Eurozone, which continues to grapple with economic and political problems. The IMF says the Eurozone will remain in recession throughout 2013, and downgraded its forecast from -0.4% to -0.6%. For 2014, the IMF trimmed its forecast from 1.0% to 0.9%. 

Now that the US is posting stronger employment numbers and the recovery appears to be strengthening, there is increased speculation that the Federal Reserve will taper QE later this year. Federal Reserve chair Bernard Bernanke has stated that the Fed would act by the end of the year if the economy continues to improve, resulting in a massive sell-off of US bonds, which raised yields and bolstered the US dollar. The markets are eagerly waiting for the release of the FOMC’s last recent policy meeting, which will be released on Wednesday. Traders should be prepared for some volatility in the currency markets after this major release. Bernanke will be addressing an economic conference later on Wednesday, and analysts will be monitoring the speech for any clues as to the Fed’s future monetary policy.

USD/CAD for Wednesday, July 10, 2013

USD/CAD 1.0518 H: 1.0540 L: 1.0495

USD/CAD Technical

USD/CAD continues to edge lower, and the proximate support and resistance lines remain in place (S1 and R1 above). On the downside, the pair continues to receive support at 1.0502, which is protecting the 1.05 level. This line was breached in the European session and could fall if the Canadian dollar can muster some momentum. This is followed by a stronger support level at 1.0442. The pair faces resistance at 1.0573. This line has gained some breathing room as the Canadian dollar trades at lower levels. There is stronger resistance at 1.0652.

• Current range: 1.0502 to 1.0573

Further levels in both directions:

• Below: 1.0502, 1.0442, 1.0337, 1.0282, 1.0229 and 1.0157
• Above: 1.0573, 1.0652, 1.0705, 1.0780 and 1.0853

OANDA’s Open Positions Ratio

USD/CAD ratio is unchanged in the Wednesday session. We are seeing some slight movement in the pair, as the loonie has edged higher against the US dollar. Short positions continue to enjoy a substantial majority of the open positions, indicating a strong trader bias towards the loonie  continuing to move higher.

Canada has posted some strong housing and construction numbers this week, but so far, the Canadian dollar has not been able to translate this into substantial gains against the US dollar. With the Fed releasing the FOMC minutes later on Wednesday, we could see some volatility from the pair, depending on the market’s reaction to this major release.

USD/CAD Fundamentals

• 14:00 US Wholesale Inventories. Estimate 0.3%. Actual -0.5%.
• 14:30 US Crude Inventories. Estimate -2.9M. Actual -9.9M.
• 17:00 US 10-year Bond Auction.
• 18:00 US FOMC Meeting Minutes.
• 20:10 US Federal Reserve Chairman Bernard Bernanke Speaks.

*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.