USD/CAD Daily Fundamental Analysis for July 21, 2011

The USD/CAD pair extended its drop on Wednesday to reach a 2-1/2 month low, as the Bank of Canada released its monetary policy report, which signaled that economic activities are expected to pick up in the second half of this year, while the BOC also expects inflation risks to rise amid rising energy prices, while the BOC signaled it could raise interest rates gradually during the second half of this year, which provided the CAD with strong momentum to push the USD/CAD pair to the downside.

Meanwhile, sentiment in global financial markets remained positive, as U.S. companies continued to announce better than expected earnings, which boosted confidence in markets, and increased demand for higher yielding assets, which weighed down on the USD against the CAD. Moreover, crude oil prices were slightly higher after the EIA report showed crude oil inventories fell below expectations, which provided the CAD with further momentum against the USD.

If the positive sentiment continues to dominate financial markets, we should expect the USD/CAD pair to extend its drop on Thursday, although markets will remain focused on the latest developments in Europe and whether EU leaders will reach a resolution to the debt crisis in the Euro Zone, while news reports suggest that U.S. lawmakers are close to reaching a deal to raise the debt ceiling, and traders will be following the latest developments from the U.S. Congress.

Thursday July 21:

The US will start Thursday as usual at 12:30 GMT with the weekly jobless claims, which are expected to rise to 410 thousand after they eased the previous week to 405 thousand.

At 14:00 GMT the Leading Indicators for June are due and expected to ease to 0.2% from 0.8%. At the same time the Philadelphia Fed Index for July is also due and expected with improvement to 2.0 rebounding from -7.7.

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