USD/CAD
Foreign Buyers Dissipate: Canadian dollar selling dominated over greenback bullishness as traders bid the loonie lower in anticipation of tomorrow's consumer price index. Expected to decline, market sentiment is now leaning to a halt on previously anticipated interest rate increases by central bank policy officials as the report is expected to reflect the slowest pace in four months. Previously estimated to rise, annual inflation is now anticipated to rise a paltry 2 percent after leaping forward 3.4 percent in the month of September. With price increases seemingly tame, policy makers may decide to take a different course of action and sit back despite the region still running at full capacity. Additionally lending to some near term pessimism was this morning's international securities transaction data. The report was reflective of shrinking foreign investment as investors pared back positions in Canadian investments. The figure fell to C$3.8 billion for the month, lower than the previous increase of C$4.8 billion.
Technically Speaking: The dollar has rallied for the second day against the loonie after setting a 13-year low last Thursday. Today's price action was highlighted by the break of the 38.2 fib of the November - December loonie rally at at 1.1635/40. The momentum following the break however was capped by the 50.0 fib of the same rally. If this level is broken, resistance from the 23.6 fib from the longer loonie rally at 1.1750 will offer a close, next level buffer. On the other hand, if loonie bulls see the current price level as a place to get in cheap, a run down will first come up against the previously breached 1.1635/40 level. Further down, massive support lies at 1.1550 and the spike low at 1.1450.
EUR/CAD
Interest Rates Persist Despite Meager Growth: Mixed economic data preceded the rise during the session as traders capitalized on producer price figures in bolstering euro bidding. According to the Federal Statistics Office, prices at the producer level soared above, rising a whopping 5 percent in the annualized comparison. Subsequently, the monthly figure dipped by a smaller than expected 0.1 percent in November. With energy prices rising an eye popping 17.5 percent, the figure was not only somewhat unexpected, it also lends to speculation of further rate increases in the European region. However, although the decision looks relatively clear cut, policy makers may not be so readily forthcoming with higher rates. The Euro zone is still battling record high unemployment rates as domestic demand remains tepid. Granted exports are still churning for the German economy it may not be enough to spur overall growth. Additionally, the surge in energy prices may be seen as only a temporary shock to the infrastructure. Nonetheless, with interest rates continuing to be the theme in the markets, traders bid the EURCAD currency pair higher in hopes of seeing 2.50 in the near future.
Technically Speaking: The two week long rally the euro has held against the loonie could be at an end. The push today above the 50.0 fib of the October - December loonie run at 1.3978 was quickly capped at the former November range resistance level at 1.4050. Another break higher, could test the 61.8 fib of the same rally at 1.4075/80, but staunch resistance will be absent until the October range high at 1.4260 is approached. If loonie-bulls jump on this chance to reign the pair back into their control, a run to the bottom of the rising trend channel around 1.3925 is likely.
GBP/USD
Sterling Bulls Take A Dive: Pound bulls took the day off today as the underlying currency slipped following dovish suggestions from Bank of England economist Charlie Bean. Speaking to the Sunday Times and a policy voting member, Bean stated that policy makers won't “sit here until the spring time doing nothing.” With inflationary pressures a bit backed off and consumer consumption a definitive concern, traders took the comments as a warning to expect rate cuts in the coming six months. Further lending to the notion has been dour releases for manufacturing and industrial production with continued weakness in the retail sector. In this case, a rate cut may be exactly what the region needs to perk up. All in all, this may lead the underlying currency further lower in the coming days as the major is headed for the biggest annual decline since 1992. Subsequently, Chancellor of the Exchequer Gordon Brown slashed his economic forecast from the previous 3.5 percent to 1.75 percent.
Technically Speaking: Indecision in the GBPUSD has left the currency pair with a choice to make. A 38.6 fib of a September - December dollar rally at 1.7600 has converged with the bottom bound of the rising trendchannel beginning in late November. A break of this immediate support level will leave little in the way of technical significance in its way. A weak former support level at 1.7520 is the nearest level. The more probable move higher could make an eventual move to the 1.7775/80 level which is both a 50.0 fib of the previously described rally and swing high fo the recent pound rally.
Richard Lee is a Currency Strategist at FXCM.
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