Yesterday’s trade saw USD/CAD within the range of 1.3705-1.3912. The pair closed at 1.3860, edging up 0.18% on a daily basis. It has been the 18th gain in the past 31 trading days. In addition, the daily low has been an exact test of the low from February 5th.
At 9:32 GMT today USD/CAD was inching down 0.01% for the day to trade at 1.3859. The pair touched a daily low at 1.3847 during early Asian trade, undershooting the daily S1 level, and a daily high at 1.3899 at 7:05 GMT.
Canada’s dollar paired recent gains against its US counterpart, as crude oil futures marked a 4.46% slump on Tuesday, or the largest since February 11th. February 16th marked the 24th drop in oil prices out of the past 43 trading days. Oil futures for March delivery went down as low as $28.70 per barrel on February 16th, or the lowest price level since February 12th, and closed at a level of $29.24. As of 9:43 GMT today the commodity was edging up 0.22% on a daily basis to trade at $29.31 per barrel, after going up as high as $29.47 earlier. Oil has increased its slump to 12.75% so far during the current month.
On Wednesday USD/CAD trading may be influenced by the following macroeconomic reports as listed below.
Fundamentals
United States
Housing Starts, Building Permits
The number of housing starts in the United States probably increased 2.5% to 1.177 million units in January, according to market expectations, from the seasonally adjusted annual rate of 1.149 million during the prior month. If expectations were met, this would be the highest number of starts since September 2015, when a figure of 1.206 million was reported. In December starts of single-family houses dropped at a monthly rate of 3.3% to 768 000, while starts of buildings with five units or more were 1.0% lower to reach 381 000. In December, housing starts fell in the Midwest (down 12.4% month-over-month), in the West (down 7.6%) and in the South (down 3.3%), while increasing in the Northeast (up 24.4%).
Housing starts represent a gauge to measure residential units, on which construction has already begun every month. A start in construction is defined as the foundation laying of a building and it encompasses residential housing primarily.
The number of building permits in the country probably edged down 0.1% to 1.200 million in January from a revised down annual level of 1.204 million in December (1.232 million previously). The latter has been the lowest number of permits since October 2015, when a level of 1.150 million was reported. Single-family authorizations increased at a monthly rate of 1.8% to reach 740 000 units in December, while permits of units in buildings with five units or more were reported to have fallen 11.4% to 492 000.
Building permits are permits, issued in order to allow excavation. An increase in the number of building permits and housing starts usually occurs a few months after mortgage rates in the country have been reduced. Authorizations are not required in all regions of the United States. Building permits, as an indicator, also provide clues in regard to demand in the US housing market. In case a lower-than-anticipated figure is reported, this would have a moderate bearish effect on the US dollar. The official report is due out at 13:30 GMT.
Producer Price Index
Annual producer prices in the United States probably fell for a 12th month in a row in January, by 0.6%, according to the median estimate by experts. If so, this would be the lowest annual drop since February 2015, when producer prices fell 0.6% as well. In December the annualized Producer Price Index (PPI) dropped 1.0%. It reflects the change in prices of over 8 000 products, sold by manufacturers during the respective period. The Producer Price Index (PPI) differs from the Consumer Price Index (CPI), which measures the change in prices from consumer’s perspective, due to subsidies, taxes and distribution costs of different types of manufacturers in the country. In case producers are forced to pay more for goods and services, they are more likely to pass these higher costs to the end consumer. Therefore, the PPI is considered as a leading indicator of consumer inflation. In case annual producer prices fell at a lesser rate than anticipated, this would have a moderate bullish effect on the US dollar.
The nation’s annualized core producer price inflation, which excludes prices of volatile categories such as food and energy, probably accelerated to 0.4% in January from 0.3% in December. The latter has been the lowest annual surge in the core PPI since October 2015. The Bureau of Labor Statistics is expected to report on the official PPI performance at 13:30 GMT.
Industrial Production
Industrial output in the United States probably expanded 0.4% in January, according to market expectations, following five consecutive months of contraction. In December industrial production shrank 0.4% from a month ago.
In December activity in the US mining sector shrank 0.8% compared to a month ago, marking a fourth straight month of decline.
The gauge for utilities registered a 2.0% monthly drop in December, as unusually warm weather conditions continued to weigh on demand for heating.
Manufacturing production, which accounts for almost three quarters of total industrial production, fell 0.1% in December. Production of non-durable goods shrank 0.2%, while production of durable goods rose 0.1% during the month. At the same time, the gauge for other manufacturing industries (publishing and logging) declined 0.5%.
In case the index of industrial output rose more than anticipated in January, this would have a moderate bullish effect on the US dollar. The Board of Governors of the Federal Reserve is to release the production data at 14:15 GMT.
FOMC Minutes
At 19:00 GMT the Federal Open Market Committee (FOMC) will release the minutes from its meeting on policy held on January 26th-27th. The minutes offer detailed insights on FOMC’s monetary policy stance. This release is closely examined by traders, as it may provide clues over interest rate decisions in the future. High volatility is usually present after the publication.
In her testimony before the US Congress earlier in February, Fed Chair Janet Yellen expressed concerns that tighter financial conditions and macroeconomic developments abroad could influence the US overall economic outlook. According to excerpts from Yellens testimony before the Committee on Financial Services on February 10th: ”Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar. These developments, if they prove persistent, could weigh on the outlook for economic activity and the labor market, although declines in longer-term interest rates and oil prices provide some offset.”
”It is important to note that even after this increase, the stance of monetary policy remains accommodative. The FOMC anticipates that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate. In addition, the Committee expects that the federal funds rate is likely to remain, for some time, below the levels that are expected to prevail in the longer run.”
”…stronger growth or a more rapid increase in inflation than the Committee currently anticipates would suggest that the neutral federal funds rate was rising more quickly than expected, making it appropriate to raise the federal funds rate more quickly as well. Conversely, if the economy were to disappoint, a lower path of the federal funds rate would be appropriate.”
Daily and Weekly Pivot Levels
By employing the Camarilla calculation method, the daily pivot levels for USD/CAD are presented as follows:
R1 – 1.3879
R2 – 1.3898
R3 (range resistance) – 1.3917
R4 (range breakout) – 1.3974
S1 – 1.3841
S2 – 1.3822
S3 (range support) – 1.3803
S4 (range breakout) – 1.3746
By using the traditional method of calculation, the weekly pivot levels for USD/CAD are presented as follows:
Central Pivot Point – 1.3882
R1 – 1.3982
R2 – 1.4116
R3 – 1.4216
S1 – 1.3748
S2 – 1.3648
S3 – 1.3514
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