Market Overview

USD/CAD Dec. 17 – Loonie Continues to Gain Traction

USD/CAD continues to push downward, and has reached levels not seen since mid-October. The loonie took full advantage of the Federal Reserve's decision to implement another round of monetary easing, and has gained about one cent against the greenback in the past week. Under this program, known as Q4, the Fed will purchase an additional $45 billion per month in Treasury holdings in order to boost the US economy.

Meanwhile, the gridlock over the fiscal cliff shows no signs of letting up. The Republicans have retreated on their demand not to raise taxes, but want a hike to only affect those earning more than $1 million. The Democrats are insisting on tax hikes for those earning over $250,000. There is mounting pressure on the two sides to reach an agreement, since if no action is taken, the combination of higher taxes and cuts in federal spending, which would occur automatically at the end of 2012, could push the fragile US economy into recession.

In the end, some compromise or stop-gap measure is likely to be reached on Capitol Hill before the end of the year. The trading week begins with just a few economic releases out of Canada and the US. In the US, Monday's releases looked awful. Empire State Manufacturing fell to a three-month low, coming in at -8.1 points. This was much worse than the estimate of -0.7 points. TIC Long-Term Purchases was also well off the forecast, posting its worst showing in over five years. In Canada, Foreign Securities Purchases looked sharp, easily beating the estimate and posting their best numbers since July.

USD/CAD for Monday, Dec 17, 2012

USD/CAD
Dec 17 at 15:10 GMT

0.9840 H: 0.9881 L: 0.9837

S3 S2 S1 R1 R2 R3
0.9625 0.9767 0.9812 0.9909 1.00 1.0041

 

USD/CAD Technical
USD/CAD has broken through support at 0.9860 and continues to push lower. The next line on the downside is at 0.9812. On the upside, 0.9909 has strengthened as the pair trades at lower levels.
• Current range: 0.9812 to 0.9909
Further levels in both directions:
• Below: 0.9812, 0.9767, 0.9625, 0.9526 and 0.9445.
• Above: 0.9860, 0.9909, 1.00, 1.0041, 1.0157 and 1.0252.

OANDA's Open Position Ratios
USD/CAD bias remains strongly in favor of long positions. The loonie is improving early in the Monday North American session, week, but trader sentiment continues to favor the greenback. The US dollar has lost ground following the Q4 announcement, but we could see it rebound as the markets digest this news and shift their attention elsewhere.

Today's Expectations
The loonie has enjoyed a solid run of late, and is continues to post gains against its US counterpart in Monday's trading. Will the rally continue? There are no major economic releases out of Canada or the US until mid-week, so we could see a magnified reaction to other developments, such as news out of Europe or the fiscal cliff.

USD/CAD Fundamentals

• 13:30 Canadian Foreign Securities Purchases. Estimate 9.85B. Actual 13.26B.
• 13:30 US Empire State Manufacturing Index. Estimate -0.7 points. Actual -8.1 points.
• 14:00 US TIC Long-term Purchases. Estimate 24.3B. Actual 1.3B.
• 16:00 US FOMC Member Jeremy Stein Speaks.
• 18:00 US FOMC Member Jeffrey Lacker Speaks.

*Key releases are highlighted in bold
*All release times are GMT

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