Market Overview

USD/CAD – Edges Higher as US Dollar Rebounds from Fiscal Cliff Losses

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USD/CAD continues to edge higher, after the Canadian dollar take advantage of broad US dollar weakness following the agreement on the fiscal cliff issue. The pair has now crossed above the 0.99 line as the greenback has recovered some of this week's earlier losses. In the US, employment news was mixed on Thursday, as the ADP Non-Farm Employment Change looked very sharp. The markets are waiting for more US employment data, with the scheduled release of the official Non-Farm Employment Change and the all-important Unemployment Rate.

The Federal Reserve released the minutes from its most recent policy meeting, which indicated that the Fed may end the QE4 program sometime in 2013. This development has helped boost the US dollar, as the possible ending of monetary easing in the US is dollar-positive. Friday's other highlight is US ISM Non-Manufacturing PMI. In Canada, Friday will see the first economic data since Christmas. Highlights include the Unemployment Rate and Employment Change.

The week's big news was the fiscal cliff agreement, as members of Congress put together a deal on New Year's Day. The markets breathed a sigh of relief as the fiscal cliff agreement was approved, but more trouble lies ahead. Although both the Senate and House of Representatives passed the deal by large margins, there was plenty of grumbling on both sides of the political divide – perhaps proof that the deal reached was a true compromise. Most notably, the hard-fought agreement failed to deal with two critical issues – the debt ceiling and spending cuts.

The debt ceiling will be reached in February, and Republicans have vowed that the government must agree to deep spending cuts before they will agree to raise the debt ceiling. For their part, the Democrats are strongly opposed to cuts to major federal programs such as Medicaid. The IMF has also weighed in, saying that the fiscal agreement is not enough, and that the US must take further action to deal with its long-term debt problem. The IMF call for Congress to quickly approve a comprehensive plan which to “ensure both higher revenues and containment of entitlement spending over the medium term”.

As we start 2013, a look at recent key US releases points to a confusing picture. Employment numbers released on Thursday were mixed. Unemployment Claims shot up to 372 thousand, well above the estimate of 356K. On the other hand, ADP Non-Farm Payrolls was outstanding, jumping to 215K. This crushed the estimate of 134K. Recent US housing figures were also a mixed bag, with New Home Sales down, but Pending Home Sales up sharply. Although there are clear signs that the US economy is improving, this zigzagging makes it difficult to predict how strong the recovery really is and what to expect in early 2013.

In Canada, fundamentals remain strong, but the manufacturing and housing sectors have had a bumpy ride, and this could slow growth in 2013. There is hope that 2013 will see an improvement in the global economy , which would translate into increased demand for Canadian oil and other raw materials, and help to boost both the Canadian economy and the Canadian dollar.

USD/CAD for Friday, Jan 4, 2013

USD/CAD
Jan 4 at 10:45
GMT

0.9916 H: 0.9920 L: 0.9878

USD/CAD Technical

 

<table 0"="" style="border: solid 1px #666666; border-collapse: collapse; padding: 0;" cellpadding="0" cellspacing="0" width="100% border="> <tbody> <tr style="background-color: #ebebeb;"> <td style="text-align: center; border: solid 1px #666666;">S3</td> <td style="text-align: center; border: solid 1px #666666;">S2</td> <td style="text-align: center; border: solid 1px #666666;">S1</td> <td style="text-align: center; border: solid 1px #666666;">R1</td> <td style="text-align: center; border: solid 1px #666666;">R2</td> <td style="text-align: center; border: solid 1px #666666;">R3</td> </tr> <tr> <td style="text-align: center; border: solid 1px #666666;">0.9812</td> <td style="text-align: center; border: solid 1px #666666;">0.9845</td> <td style="text-align: center; border: solid 1px #666666;">0.9909</td> <td style="text-align: center; border: solid 1px #666666;">0.9943</td> <td style="text-align: center; border: solid 1px #666666;">1.00</td> <td style="text-align: center; border: solid 1px #666666;">1.0041</td> </tr> </tbody> </table> <p><br> </p> <p>USD/CAD is seeing a correction from its recent drop after the fiscal cliff agreement. The pair continues to move upwards, and has crossed over the 0.99 line. The resistance line of 0.9909 is under pressure, with stronger resistance at 0.9943. On the downside, 0.9845 continues to provide support. This line has strengthened as USD/CAD trades at higher levels.<br> • Current range: 0.9909 to 0.9943.<br> Further levels in both directions:<br> • Below: 0.9909, 0.9845, 0.9812, 0.9767, 0.9625 and 0.9526.<br> • Above: 0.9943, 1.00, 1.0041, 1.0157 and 1.0252.<br> <strong>OANDA's Open Position Ratios</strong><br> After broad weakening by the US dollar earlier in the week, USD/CAD has changed direction, and is slowly moving in an upward direction. The ratio remains strongly biased in favor of long positions, although there has been a slight decrease in this component. Trader sentiment continues to strongly favor further gains by the US dollar against the loonie, and this is the current direction in Friday's trading.<br> USD/CAD has undergone a correction, as the US dollar has partly recovered from its losses earlier this week. The markets will be analyzing Friday's Canadian and US employment data, and the readings could affect the movement of USD/CAD. Look for the fluctuations in the pair to continue.</p> <p><strong>USD/CAD Fundamentals</strong><br> • Canadian Employment Change. Estimate 4.0K.<br> • Canadian Unemployment Rate. Estimate 7.3%.<br> • Canadian RMPI. Estimate -0.9%.<br> • Canadian IPPI. Estimate -0.2%.<br> • 13:30 US Non-Farm Employment Change. Estimate 150K.<br> • 13:30 US Unemployment Rate. Estimate 7.7%.<br> • 13:30 US Average Hourly Earnings. Estimate 0.2%.<br> • 15:00 US ISM Non-Manufacturing PMI. Estimate 54.2 points.<br> • 15:00 US Factory Orders. Estimate 0.3%.<br> • 15:30 US Natural Gas Storage. Estimate -129B.<br> • 16:00 US Crude Oil Inventories. 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