USD/CAD Forecast January 16-20, 2012, Fundamental Analysis

USD/CAD Forecast January 16-20, 2012, Fundamental Analysis
USD/CAD Forecast January 16-20, 2012, Fundamental Analysis
The USD/CAD pair rallied to the upside at the end of last week, as the U.S. dollar strengthened on mounting fears the European debt crisis is worsening, on eased woes that seemingly ran out of steam to the end of the week after renewed warnings from rating agencies for imminent downgrades.

Nevertheless, all the hopes came to halt with the end of the week with rating agencies again raising the heat. Already throughout the week comments from Fitch were generally targeting the risk that Italy faces and the likely rating cut and that was reiterated by S&P on Friday that sent markets frantically lower.

This week the weak data flow from the euro area will leave the focus on the debt crisis with more auctions and eyes on rating agencies, especially after Fitch earlier said that the review might be concluded around January 15 and with S&P’s warning investors will remain sensitive to any comments and eyes the auctions closely with Spain, France, Portugal and Greece heading to the market.

From the U.S. front heavy data is awaited yet generally we expect good industrial and housing data and if the sentiment remains fragile and good figures are provided from the U.S. the attempts for the euro to stabilize last week will be dethroned and the bearishness will take hold once again assuring that it was only false attempts as unless the euro stabilizes this week higher then we can surely say the bearishness is back.

We need to track the debt sales this week as well with eyes on Italy, France, Greece and Portugal as the yields and demand will be closely observed. The euro area lacks major fundamentals yet the debt crisis developments and any comments from leaders will be watched.

The high level of uncertainty in markets could provide the USD/CAD pair with more bullish momentum, where traders will be eyeing developments in France, Italy and Spain, and accordingly, we should expect Europe to dominate the pair’s movement next week. Nonetheless, if optimism spreads through markets, the USD/CAD pair will decline, as demand for higher yielding assets is likely to rise in that case, and that should provide the Canadian dollar with flow.

Highlights for this week that will probably affect the USD/CAD pair’s direction are:

Monday January 16:

Both economies do not have fundamentals queued for release and the movement will be based on the market sentiment.


10:00 GMT Slovakia sells bills

10:30 GMT Netherlands sell bills

14:00 GMT France to sells bills

Tuesday January 17:

As for the United States, the day will start at 13:30 with the January Empire Manufacturing index which is expected with improvement to 10.50 from 9.53.


09:30 GMT Spain sells bills

10:00 GMT Greece sells bills

10:30 GMT Belgium sells bills

Wednesday January 18:

As for the United States a busy day starts at 13:30 GMT with the Producer Price Index for December where it is expected to ease on the month to 0.1% after 0.3% and on the year expected at 5.1% from 5.7%; excluding food and energy the index is expected steady at 0.1% and on the year to slow to 2.8% after 2.9%.

At 14:00 GMT the TIC flows for November are due after the total Net TIC Flows in October declined in October with total selling of $48.8 billion.

At 14:15 GMT the December Industrial Production index is expected with 0.5% rebound from the previous month’s 0.2% drop and capacity utilization to tick higher to 78.1% from 77.8%.


10:15 GMT Germany sells bills

10:30 GMT Portugal sells bills

10:30 GMT Belgium sells bills

Thursday January 19:

The U.S. economy will release initial jobless claims for the week ended Dec. 24 and continuing claims for the week ended Dec. 16, where they will be available at 13:30 GMT. At 14:45 GMT, Chicago purchasing manger is estimated to retreat to 60.2 in Dec. from the previous 62.6. 15 minutes later, pending home sales for Nov. will signal 1.8% advance compared with the preceding 10.4% rise.

The U.S. will start the data at 13:30 GMT with the Inflation Report. The CPI index is expected with 0.1% rise on the month after holding unchanged the previous month and on the year to slow to 3.1% after 3.4%. Excluding food and energy the index is expected with 0.1% rise on the month after 0.2% gain and on the year to hold at 2.2%.

December Housing Starts index is also due the same time and expected flat at 685,000 while Building Permits are expected with 0.7% drop to 675,000 from 681,000.

As for the Jobless Claims for the week ending in January 14 it is also due at 13:30 GMT as usual after last week they rose 24,000 to 399,000 last week.

As for the Philadelphia Fed Index for January the index is due 15:00 GMT and expected to improve slightly to 11.0 from 10.3.


09:30 GMT Spain sells bills

Friday January 20:

The United States is set to end the week with the Existing Home Sales for the month of December at 13:00 GMT where they are expected to extend the gain with 5.2% to 4.65 million from 4.42 million.

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