Dollar Hold Ground!
Dollar selling continued this week, but the pair had a hard time clearing the 1.5850 resistance level on the way to challenging the 1.5900 all time highs. Perhaps the bears are starting to run out of steam. Certainly the economic data gave them little to chew on this week. Overall the results were mixed as housing data and personal income showed some mild improvement but Durable Goods once again missed to the downside. At best one could say that the US fundamentals have not become dramatically worse and that was enough to keep dollar bears at bay.
Can Dollar Hold Ground?
Dollar selling continued this week, but the pair had a hard time clearing the 1.5850 resistance level on the way to challenging the 1.5900 all time highs. Perhaps the bears are starting to run out of steam. Certainly the economic data gave them little to chew on this week. Overall the results were mixed as housing data and personal income showed some mild improvement but Durable Goods once again missed to the downside. At best one could say that the US fundamentals have not become dramatically worse and that was enough to keep dollar bears at bay.
The pair remains at standstill as traders look for new themes to develop. Last week we noted that “With EURUSD having run out of stream at 1.5900 early last week, near term momentum has shifted to dollar bulls. They will however, need further negative surprises out of the Eurozone in order push the pair lower. Otherwise, assuming there are no additional exogenous shocks, the currency market may simply meander aimlessly for the rest of the week in very narrow trading range.”
The range for the time being appears to be contained within 1.5600-1.5850 zone. However, next week the veneer of calm may be shattered by the event risk to come. The US calendar carries important releases nearly every day of the week with both ISM Manufacturing and Services possibly foreshadowing the state of the US labor market to be revealed in Friday’s NFPs. If data confirms the doomsayers worst predictions showing continuing contraction in US labor demand, the dollar may not be able to hold its ground and 1.6000 could give way. On the other hand if the numbers do not reveal a huge decline of –100k or more, the greenback may inch away from precipice and commence a much needed relief rally.
Will The Canadian Dollar Catch The US’s Subprime Flu?
USDCAD passed the past week in a relatively tight 100-point range – giving a good feeling for the general state of the Canadian dollar itself. For the past four months, the pair has solidified a broad range between 1.0375 and 0.9700. Without historical price action for reference, such a range would be considered huge. However, this congestion is a pittance when compared to distance the Canadian dollar has traversed in its steady rally from 2002. This leaves USDCAD traders at a crossroads in deciding whether the pair has already put in a genuine reversal or a necessary period of consolidation is passing before the long-term trend can pick back up. Ultimately, this decision will be based by fundamentals and not technicals. In the past few months, any signs of developing momentum have been quickly absorbed by well capitalized range traders. What the market seems to be waiting for is data that either confirms or denies speculation that the Canadian economy will eventually show a dramatic cooling in growth that follows from the slowdown in the US, and that the BoC is heading into a period of aggressive easing that will rival the Fed’s.
This past week’s economic calendar certainly hasn’t tipped the scales in either direction. The only indicator to cross the otherwise barren wires was the usually market moving retail sales report for the month of January. For market surprising, the indicator fell flat by printing a headline reading at 1.5 percent that was only slightly above expectations. Traders seemed to be little impressed by the fact that the improvement was the biggest in eight months and the ex-autos indicator was significantly stronger than expected. From a broad fundamental perspective, this report shows that the Canadian consumer still stands as the backbone of growth and should sustain growth as exports start to fail. However, consumers’ support of the economy could easily falter should employment turn like it has recently in the US.
This week’s economic listings could have a more profound effect on the long-term outlook for the Canadian dollar, and therefore could potentially determine a direction for USDCAD. Monday brings a pivotal indicator for fundamental traders. the January GDP report will follow December’s 0.7 percent drop – the first contraction in 15 months and the biggest in over four years. Expectations are for a significant 0.5 percent rebound, but a second contraction would stoke fears that Canada is heading into an extended contraction. The next round of important fundamental data come until Friday. The volatile mix of the Ivey business sentiment survey and employment change number for March will almost certainly generate volatility. As suggested above, employment has been the fuel for consumer spending. Should there be an abrupt turn to layoffs, the outlook for growth and the Canadian dollar will dim very quickly.
Taken from http://www.dailyfx.com/story/topheadline/Can_Dollar_Hold_Ground__1206911525909.html