USD/CAD continues to edge lower, as the pair was trading in the 1.0260 range. The Canadian dollar has made minor gains since late last week, when the pair was trading above the 1.03 line. There have been very few economic US releases and none so far from Canada, which has contributed to the lack of significant movement by the pair.
In Japan, the yen has shown some volatility as the markets reacted to 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. This type of rhetoric is certainly not new, but the markets were reacting to media reports that Kuroda may start implementing more easing right after he takes office next week and not wait for the BOJ’s next policy meeting in April. There were no surprises from the BOJ’s minutes from the 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 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 improving economy has 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 later in year, and would be a dramatic shift in the Federal Reserve’s current monetary policy.
Turning to the Eurozone, ECB head Mario Draghi has tried to put a positive spin on the Eurozone economy, but the Fitch ratings agency wasn’t buying. On Friday, Fitch downgraded the debts of Italy and Spain, Belgium, Cyprus, and Slovenia. All are members of the Eurozone, and Fitch warned that urgent action was needed to deal with the debt crisis. These downgrades could result in higher borrowing costs for Italy and Spain. 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.
USD/CAD for Monday, March 12, 2013
1.0263 H: 1.0284 L: 1.0249
USD/CAD continues to show little activity, as it trades in the 1.0260 range. The pair is facing resistance at 1.0282. This is a weak line, and was briefly breached earlier today. There is stronger resistance at 1.0361. On the downside, 1.0229 is providing support. This line could face pressure if USD/CAD loses ground. The next suppport level is at 1.0157.
- 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 continues to point to movement towards long positions. We are not seeing this reflected in the current activity of the pair, which is displaying little movement. Open short positions continue to make up a commanding majority in the ratio. This indicates that trader sentiment is biased towards the loonie posting further gains against the US currency.
USD/CAD continues to look uneventful, although the loonie has made some modest gains since late last week. With the US releasing some key retail sales numbers on Wednesday, we could see some action from the listless pair.
- 11:30 US NFIB Small Business Index. Estimate 91.3 points. Actual 90.8 points.
- 18:00 US Federal Budget Balance. Estimate -200.0B
*Key releases are highlighted in bold
*All release times are GMT
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