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Trading Currencies – USD to CAD 7th April 2009

Currency Chart - USD to CAD Daily Candle Chart 7th April 2009

Wow – yesterday’s fundamental news on the economic calendar for the usd to cad pair came as a complete shock to the market (and me) coming in far worse than expected with building permits falling a whopping -15.9% against a forecast of -3.6% and with the Ivey PMI data, again coming in far worse than expected, at 43.2 against a forecast of 46.7.  As a result the US dollar shot higher on the news with a subsequent weakening of the Loonie, which was also enhanced by general US dollar strength across a variety of currency pairs.  This salutary lesson only goes to show how easy it is to be wrong footed especially when significant fundamental news is on the horizon, and particularly when the numbers come in so far out of line with market expectation.

The usd to cad pair are likely to continue providing surprises this week as there are several significant items of fundamental news due for release before the Easter weekend and these include housing starts on Wednesday, followed by the employment change, unemployment rate, trade balance and NHPI, all of which are specific to Canada as well as crude oil inventories in the US.  Based on yesterday’s performance, any or all of these could provide some more shocks and surprises, and coupled with thin trading volumes and a short trading week could make trading this pair hazardous.

From a technical perspective yesterday’s wide spread up bar has provided three interesting aspects on the daily candle chart.  First, the close of the day finished above both the 9 and 14 day moving averages, secondly it is a bullish engulfing signal, and finally the low of the day bounced off the support level now set around the 1.2230 region.  In addition the 9 and 14 day moving averages have crossed suggesting we could see a possible move higher.  However, I would advise extreme caution at the moment for several reasons, not least for those outlined above, and in particular as we are now back trading in a range of heavy consolidation in what is turning into once again, a period of sideways movement.

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