Forex Market: USD/CAD daily trading outlook

Yesterday’s trade saw USD/CAD within the range of 1.4041-1.4327. The pair closed at 1.4122, plunging 1.19% on a daily basis. It has been the 4th drop in the past 16 trading days and also the steepest one since January 21st, when the pair depreciated 1.67%. The daily low was a lower-low test of the low from January 7th and also the lowest level since January 6th, when USD/CAD went down as low as 1.3969.

At 9:40 GMT today USD/CAD was losing 0.09% for the day to trade at 1.4109. The pair touched a daily high at 1.4157 at 8:20 GMT and a daily low at 1.4087 at 5:45 GMT.

On Tuesday the Canadian dollar received a boost on the back of prospects of oil supply glut resolution. Oil futures for March delivery went up as high as $32.41 per barrel yesterday and closed at a level of $30.65 to mark their 13th gain in the past 28 trading days. As of 9:45 GMT today the commodity was losing 0.52% on a daily basis to trade at $30.49 per barrel, after going down as low as $30.38 earlier. Oil has slumped 17.93% so far during the current month.

On Wednesday USD/CAD trading may be influenced by the following macroeconomic reports and other events as listed below.

Fundamentals

United States

New Home Sales

Sales of new single-family homes probably increased 2.0% to the seasonally adjusted annual rate of 500 000 in December, according to market expectations, from 490 000 reported in November. If expectations were met, this would be the highest level of sales since August 2015, when a figure of 552 000 was reported. Sales in the West went up 20.5% month-over-month in November, while those in the South rose 4.5%. At the same time, sales of new homes in the Northeast declined 28.6%, while those in the Midwest shrank 8.6%.

The median sales price of new houses sold went up as high as USD 305 000 in November, while the average sales price was USD 374 900. At the end of the month, the seasonally adjusted estimate of new houses for sale was 232 000, up from 227 000 at the end of October. It represents a supply of 5.7 months at the current sales rate, according to the report by the US Census Bureau.

In case the index of new home sales showed a better-than-anticipated performance, this would strongly support demand for the US dollar. The Census Bureau is to report the official figure at 15:00 GMT.

FOMC policy decision

The Federal Open Market Committee (FOMC) will probably keep the target for the federal funds rate at 0.500% at its two-day policy meeting, scheduled to be concluded today, according to the median forecast by experts.

In December the Committee raised borrowing costs by 25 basis points to the current 0.500% level for the first time in the past 55 policy meetings. Policy makers stressed on the significant improvement in US labor market conditions and also expressed a reasonable confidence that annual CPI inflation will accelerate to the 2% inflation objective over a medium term.

According to extracts from the FOMC Policy Statement released in December: ”Overall, taking into account domestic and international developments, the Committee sees the risks to the outlook for both economic activity and the labor market as balanced. Inflation is expected to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee continues to monitor inflation developments closely.”

”In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”

The Minutes from the FOMCs meeting on December 15th-16th, however, showed persisting concerns over low consumer inflation. ”Members observed that after this initial increase in the federal funds rate, the stance of monetary policy would remain accommodative. However, some members said that their decision to raise the target range was a close call, particularly given the uncertainty about inflation dynamics, and emphasized the need to monitor the progress of inflation closely”, the Minutes stated.

”Members stressed the potential need to accelerate or slow the pace of normalization as the economic outlook evolved. In the current situation, because of their significant concern about still-low readings on actual inflation and the uncertainty and risks present in the inflation outlook, they agreed to indicate that the Committee would carefully monitor actual and expected progress toward its inflation goal. In determining the size and timing of further adjustments to monetary policy, some members emphasized the importance of confirming that inflation would rise as projected and of maintaining the credibility of the Committees inflation objective.”

The FOMC will announce its official decision on policy at 19:00 GMT.

Daily and Weekly Pivot Levels

By employing the Camarilla calculation method, the daily pivot levels for USD/CAD are presented as follows:

R1 – 1.4148
R2 – 1.4174
R3 (range resistance) – 1.4201
R4 (range breakout) – 1.4279

S1 – 1.4096
S2 – 1.4070
S3 (range support) – 1.4043
S4 (range breakout) – 1.3965

By using the traditional method of calculation, the weekly pivot levels for USD/CAD are presented as follows:

Central Pivot Point – 1.4306
R1 – 1.4502
R2 – 1.4886
R3 – 1.5082

S1 – 1.3922
S2 – 1.3726
S3 – 1.3342