The Canadian Dollar remained in the spotlight overnight rising above the parity level while staying in a tight trading range. Yesterday, the “Loonie†fell to parity against the USD after the Bank of Canada stated the need to raise interest rates was less urgent as the economy will take longer to reach full output. This dovish stance saw traders selling Canadian Dollars pushing the currency above the 1.0000 level against the USD.
The dovish comments from the Bank of Canada caught traders by surprise. The technical resistance level of .9985 was broken during yesterday’s rise, prompting stop loss buying. Resistance now resides at 1.0020 and 1.0035. Support is at .9985 and .9960. I would expect to see buyers of Canada emerge at these levels. Given the prospects of the FED versus the Bank of Canada, many believe that monetary policy support remains with the BOC and this should be supportive for the Canadian Dollar.
After a few days of strength, the Japanese Yen is once again moving towards the 90.00 level. The weakening of the JPY was aided by comments from Japanese deputy economy minister Yasutoshi NIshimura. He stated that a USD/JPY rate at 100.00 would not be a problem. He stated that the move towards 90.00 has been a correction of a strong JPY and that it isn’t over yet. He also stated that the Bank of Japan needs to puruse bolder monetary easing if it is going to achieve their new 2% inflation target. Data released today showed exports fell for a 7th month and that Japan had a record annual trade deficit.
The Japanese government is sure to hear it from other members of the G-20 when their meeting takes place next month. While a weaker JPY certainly helps Japanese exporters, it creates problems in the countries importing Japanese products. Comments out of Europe yesterday made it clear the February meeting will certainly have plenty of comments regarding the weaker JPY. Technically, resistance for USD/JPY is at 89.75 and 90.00. Support is at 89.50 and 89.20.
The EUR traded in an uneventful trading range overnight, as the bias for the currency remains to the upside as long as the EUR remains above the 1.3250 support level. The target remains the 1.3405 area. Technical analysts expect that level to be tested but also believe the EUR fails there and reverses back towards the 1.3250 area. The market remains long EUR so a break of 1.3250 could see accelerated stop loss selling.
Look for a quiet trading day, with EUR testing the overnight highs of 1.3345. A failure to break there would push the currency back to 1.3300. As for the other currencies, another run at parity in USD/CAD is expected and the USD/JPY should continue to slowly rise.
Further reading:Â Forex Analysis: EUR/USD Consolidates within Tight Range Pattern
