Even with Friday’s jobs data (NFP out of the US) the USD/CAD continued to be sedate, moving within a 50 pip range (0.9750-0.9700) for the last 2 and half days of last week. The entire weekly range was only slightly over one cent. Through most of 2010 the average movement for the pair was over 1 cent (100 pips) per day. The daily average movement now is 57 pips. On a weekly average basis we have not seen volatility this low since before 1997.

The low volatility indicates a passivity – one which is currently allowing the the CAD to slowly and steadily rise against the USD. Where that floor is is yet to be determined by the market, but continued strength in the Canadian dollar could end up having a reverse effect, hurting the CAD economy and thus once again leading to an appreciation in the USD. Yet, in the mean time, the trend is for CAD strength. Until a closing price above 1.00 is seen, the CAD can be considered the dominant currency – not just in price but in trend.

In the short term, 0.9700 has been tested multiple times yet has so far held up quite well. A break below 0.9700, and the low at 0.9684, is likely to trigger a slide into 0.9600. There is very little price support in this area, as other than the brief blip to 0.9056 in 2007, this territory is unknown to most traders. Movement into this area could trigger the increase in volatility which will inevitably return.

There is resistance at 0.9800-0.9825 as those waiting to sell US dollars have been forced to drop there offers to sell in this area. A rise above this area is likely to trigger a rise into the 0.9900 level, where more sell orders are accumulating. The next resistance level is a little more obvious and holds psychological significance – par (1.00). An intra-day break of par will give US dollar sellers a sigh of relief as they can unload some greenbacks at a premium rate, yet the rates ability to stay above the par level through a session and close above will be the real test. Until that occurs it will remain King CAD.

Relatively light week for scheduled news:

CAD Housing Starts on Monday

Trade numbers out of the US and CAD on Tuesday along with the US budget statement

Friday is a busier day with bigger impact statements – CAD employment data and US Retail Sales data as well as the Michigan Confidence number.

Regards,

Cory Mitchell, CMT

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