$/C$

Continuing poor domestic economic newsflow is set to weigh on the Canadian dollar. We expect the counter to perform particularly poorly against America’s greenback, where the economic newsflow should be decisively more upbeat and confirmation is due that the autumn/winter housing market wobble has passed.

The next dismal economic missive to hit traders’ screens will probably be another disappointing retail sales figure from Statistics Canada, with November’s data to be published today (23 Jan) . A slowing Chinese economy has weighed heavily on Canada's commodity exports, in turn dampening the domestic economy and retail sales.

The last update on retail sales (20 Dec ’13) revealed a 0.1% retreat in October, versus expectations of a 0.2% gain. Likewise, we believe the forecast for 0.3% growth in November to prove far too optimistic, despite the continuing loose monetary conditions, with the Bank of Canada likely to have kept interest rates at 1% following yesterday’s rate-setting meeting (22 Jan).

Set against this, we anticipate confirmation that US housing market volumes are back on a recovery trajectory after last year’s wobble, when speculation of an aggressive taper to quantitative easing drove up mortgage borrowing costs. This should come in the form of the National Association of Realtors’ latest existing home sales figure for December, to be released today (23 Jan) and forecast to come in at an annualised rate of 4.94 million. This is up 0.7% on November’s 4.9 million
figure, which was a third consecutive month-on-month decline.

Key levels: The USD/CAD RSI currently resides at 71.39, suggesting an overbought level, even though we expect further weakness ahead based on the fundamentals. Should the recent high of C$1.0991 prove to be the top, traders will be looking for a close bar below C$1.0901 to add confidence to a reversal pattern. Further, the next clear area of consolidation is at C$1.0776. The pair has already held the C$1.0901 level, which is essential in order to confirm a bullish bias, as well as being an area that is likely to be where long stops are placed.