Mid-Day Report: Dollar Firm as Trade Deficit Unexpectedly Narrowed to Five Year Low

Market Overview | Written by ActionForex.com | Jan 13 09 14:26 GMT |

USD/CAD soars in early US session after the release of trade balance data from both countries. US trade deficit unexpectedly narrowed to -40.4b in Nov, much smaller than expectation of -54.4b and hit a five year low. On the other hand, Canadian trade surplus shrank more than expected to 1.28b in Nov. Fall in oil prices is the main reason behind the surprises in the trade data. USD/CAD extends recently rebound to as high as 1.2312 in early US session and is set to take on 1.2345 near term resistance level. Though the rally lost some team as oil rebounds from day low of 36.1 to above 38. Dollar remains strong in general with dollar index taking out last week's high of 84.01. This indicates that whole rebound from 77.69 has resumed and should now be targeting a retest of 88.46 high. Fed Bernanke warned in a speech today that fiscal stimulus are "unlikely to promote a lasting recovery" and should be accompanied by "strong measures to further stabilize and strengthen the financial system". Bernanke said the "more capital injections and guarantees" would be needed for stability and normalization of credit markets. Released earlier, trade deficit in the UK widened to -8.33B pounds in November (consensus: -7.5B pounds; October: -7.63B pounds (revised)), the largest deficit since record began in 1697 as exports outside of EU, especially to the US, declined sharply. DCLG house price plunged by another -5.3% after the revised drop of -7.44% in October. Earlier today, the RICS house price balance eased slightly to -73% in December, compared with market expectation of -74% and November's -76%. In Germany, Wholesale price index dropped -3.0% mom, -3.3% yoy in Dec. Japan's trade balance came in at a deficit of -93.4B yen in November, compared with consensus of -76.2B yen and a surplus of 145.8B yen in October. Current account surplus in November narrowed for a 9th month to 581.2B yen, -66% from the same period last year. The reading is worse than market expectation of 600B yen and 960.5B in October as export declined by 26.5% while import dropped by 13.7%. Economic watch DI dropped further to 17.6 in Dec. USD/CAD Mid-Day Outlook Daily Pivots: (S1) 1.1963; (P) 1.2079; (R1) 1.2287; More. USD/CAD's rebound from 1.1761 extends further to as high as 1.2312 in early US session. The decisive break of inner trend line resistance argues that fall from 1.3005 has completed at 1.1761. At this point, intraday bias remains on the upside as long as 1.2139 minor support holds. Break will confirm this case and bring retest of 1.3005/15 resistance zone. On the downside, below 1.2139 will turn intraday outlook neutral first. In the bigger picture, there is no confirmation of completion of medium term up trend from 0.9056 yet. Such rise is expected to be developing into a five wave sequence (1.0378, 0.9823, 1.3015, ......) Though, recent development, with weekly MACD crossed below signal line, suggests that consolidation from 1.3015, which should be the fourth wave consolidation, is still in progress. Another fall could be seen to 1.1464 support and below. Though downside is expected to be contained by 50% retracement of 0.9823 to 1.3015 at 1.1419 and bring medium term up trend resumption. Above 1.3005/15 will pave the way towards 61.8% retracement of 1.6196 to 0.9056 at 1.3469 before making a medium term top. On the downside, however, decisive break of 1.1419 will dampen this view and argue that a medium term top is possibly in place at 1.3015 already and much deeper decline could then be seen back to support zone of 0.9709/1.0378.