USD/CAD Forecast Dec. 08, 2011, Fundamental Analysis

The USD/CAD pair rebounded to the upside on Wednesday, where cautious trading continued to dominate markets ahead of the European Central Bank’s meeting on Thursday, where the ECB is widely expected to cut the benchmark interest rates by 25 basis points to 1.00%. Moreover, investors were careful ahead of the EU summit on Friday amid hopes EU leaders will announce strong measures to ease the euro zone debt crisis.

Traders will continue to monitor the developments from Europe regarding the debt crisis, where the focus will turn to the ECB decision on interest rates and the conference that will follow the decision, as investors will be eyeing remarks by the ECB Chairman Mario Draghi and whether the ECB will loosen its monetary policy further in the future.

The USD/CAD pair could drop further on Thursday if the ECB manages to convince markets that it stands ready to help in easing the debt crisis in Europe, but we still expect volatility to continue to dominate trading, as uncertainty remains the dominant theme in markets, and that could also lead to high levels of fluctuations for the USD/CAD pair.

Thursday December 8:

The European Central Bank will start the session with the Interest Rates Decision for December, with expectation the Governing Council could have lowered the key rate to 1.00% from 1.25%.

Canada will release the housing starts for November at 13:15 GMT, which is expected to ease to 200.0K from 207.6K in October.

Canada will release the new housing price index for October at 13:30 GMT, where house prices rose 0.2% in September, while on yearly basis, house prices rose by 2.3% in September.

The United States will join the session at 13:30 GMT with the Initial Jobless Claims (DEC 2), noting that the previous figure was 402 thousand claims.

At 15:00 GMT the United States will provide markets with the Wholesale Inventories for October, which could have expanded by 0.4% from the prior drop of 0.1%.

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