Fundamental Data Today Favor the Loonie

USD/CAD Fundamental Analysis

Favorable fundamentals are seen to support the bearish run by the USDCAD currency pair today. The markets were greeted by manufacturing sector expansion in China, followed by investors looking forward to European Union budget talks. A cease-fire agreement between Israel and Hamas in the Gaza Strip was also announced last night, adding to positive sentiment. Moreover, positive consumer spending data from Canada, topped by optimism on economic activity from Thanksgiving and Black Friday, are perceived to spur demand for risk. Trades are likely to favor the Canadian dollar over the US currency and challenge the 0.9953 psychological handle today.

China’s HSBC Flash PMI data rose to a 13-month high of 50.4 points in November. This is the latest indicator of recovery in the real economy following last month’s data which showed solid credit growth, firmer exports and rising industrial output.

In Europe, budget negotiations resume in Brussels today with differences remaining between Europe’s member states over the size of the proposed 1 Trillion Euro budget and spending and subsidy cuts set for 2014-2020. Finance ministers from the Euro-area said a further meeting on Greece had been arranged for Monday and that only technical problems are holding up a deal. “We have a series of options on the table on how to close the financing gap,” German Finance Minister Wolfgang Schaeuble told reporters in Brussels yesterday. “We discussed the issue very intensively, but since the questions are so complicated we didn’t come to a final agreement.” Investors are pricing in a deal for Athens eventually.

In the Middle East, tensions between Israel and Hamas have come to a halt following the announcement of a truce that was brokered by the Egyptian government. The UN Security Council called on both sides “to act seriously” and “in good faith” to bring a “sustainable and durable” peace in the Middle East.

Back to North America, the holiday weekend has Americans on a travel surge, and more importantly, on a spending mode. The lack of storms is deemed to discourage delays and cancellations, for which a smooth Thanksgiving weekend at airports is expected. Black Friday sales is expected to be strong in spite of the recent hurricane and the still modest economic recovery. “While the holiday shopping season is off to a relatively slow growth start, if the country experiences good weather conditions, Black Friday 2012 still has an opportunity to exceed $21 billion in total retail sales. This would set a new record for the busiest shopping day in U.S. history, up from $19.3 billons in 2011,” Michael McNamara, Spending Pulse’s vice president for research and analysis, told CNBC.

From the Maple Leaf, StatsCan is expected to reveal that retail sales in September bested that of August’s. From a 0.3 percent rate in August, headline retail spending grew by 0.5 percent, according to the median estimate of economists. Core Retail Sales, in the meantime, is believed to have increased by 0.5 percent from 0.4 percent during the same period.

These fundamental data are likely to buoy demand for the riskier Loonie and direct USDCAD currency exchanges along a bearish path. A short position is recommended, but be wary of probable technical price corrections.

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