Market Overview

USD/CAD – Steady as Fiscal Cliff Crisis Continues

USD/CAD remains steady as we begin the last trading week of the year. On Friday, Canadian releases were uneventful, while in the US, Core Durable Goods Orders was very sharp, but UoM Consumer Sentiment disappointed. Markets in both Canada and the US markets are increasingly nervous with no solution in sight to the fiscal cliff crisis. There are no scheduled events on Monday as the markets wind down for the Christmas holidays.

Last week wrapped up with several key releases out of Canada and the US. In Canada, Core CPI came in at a flat 0.0%, which was lower than the forecast of 0.2%. GDP rose 0.1%, matching the market forecast. In the US, Core Durable Goods Orders posted an excellent gain of 1.6%, surprising the markets which had expected a decline of 0.2%. However Revised UoM Consumer Sentiment dropped to a four-month low, posting a reading of 72.9 points. This fell below the market expectation of 74.9 points.

In Washington, the fiscal cliff clock continues to tick down before a series of tax hikes and spending cuts automatically kick in. If no action is taken, this could hurt the improving but fragile US economy, and result in a recession in 2013. Despite the high stakes involved, Republicans and Democrats remain far apart on how to tackle spending cuts and tax hikes, and the fiscal cliff negotiations in Congress are gridlocked, as each side continues to attack and blame the other for the impasse. There were some red faces on the Republican side last week, as Republican House Leader John Boehner threatened to pass a “Plan B” that would have avoided tax hikes for all Americans earning less than $1 million per year.

In the end the the motion was withdrawn to due lack of support on the Republican side. to due lack of support on the Republican side. The Republicans took a gamble on Plan B, hoping that it would put the ball back in the Democrat's court, and embarrass the White House if it went ahead and vetoed the motion. In the end, it was House Leader Boehner who had to wipe egg off his face, as Plan B turned out to be a futile political maneuver. Meanwhile, Congress is adjourned until December 27th, just days before the fiscal cliff kicks in. Will the US “go down the cliff” into 2013, or will the lawmakers hammer out an agreement this week? USD/CAD is tightly bound to fiscal cliff, and the pair could show some volatility if there are developments in the crisis during the week.

USD/CAD for Monday, Dec 24, 2012

USD/CAD
Dec 24 at 15:15GMT

0.9915 H: 0.9946 L: 0.9915

USD/CAD Technical

S3 S2 S1 R1 R2 R3
0.9812 0.9845 0.9909 0.9943 1.00 1.0041

USD/CAD continues to push higher, as the pair pushed above the 0.99 line on Friday. The next resistance line is at 0.9943, followed by the all-important parity line. On the downside, 0.9909 is providing weak support. 0.9845 has strengthened as the pair trades at higher levels.
• Current range: 0.9909 to 0.9943.
Further levels in both directions:
• Below: 0.9909, 0.9845, 0.9812, 0.9767, 0.9625, 0.9526 and 0.9445.
• Above: 0.9943, 1.00, 1.0041, 1.0157 and 1.0252.

OANDA's Open Position Ratios
As the USD/CAD weakens and begins to eye parity, the ratio for USD/CAD continues to favor of long positions. Trader sentiment expects the US dollar to improve at the expense of the loonie. Will this trend continue?
USD/CAD received a boost from strong US data last week, and the pair has room to continue its upward movement. With only a few economic releases this week due to the holidays, fiscal cliff developments could have a major impact on the currency, with only a few days remaining to reach a deal.
USD/CAD Fundamentals
• There are no scheduled releases out of Canada or the US on Monday.

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