USD/CAD: Demand for Safety Buoys Greenback After Sour Euro Data

Demand for safe investments like the US dollar look to trump risk assets such as the Canadian dollar today after a string of woeful economic data from Japan to the European bloc. Trade sentiment turns lower as uncertainty flourished across the markets from earlier releases.

The markets turned sour after reports from the Eurostat, INSEE and Destatis proclaimed what economists have already expected – except that analysts’ estimates proved to be relatively conservative than what actual figures showed. The Euro Zone buried itself deeper in recession in the past quarter, according to the first estimate on gross domestic product data. In what seemed to be a role reversal, preliminary data showed that Germany and France shrank by 0.6 percent and 0.3 percent, respectively in the final quarter of 2012. For Germany, this is its deepest contraction since the height of the global financial crisis in 2009, while France is edging closer to recession.

Considering the market sentiment, demand for the secure asset Greenback is seen to take in gains from the Loonie, despite the latter making recent headway to near parity. A buy position is suggested for the USDCAD should trade perception continue to remain ill. Still, it would be best to wait for the technical correction to end before entering a buy on the currency pair, after the price index shied away from the neutral 50.0 position from the lower tier.

Also, it would be wise to take into consideration the effect of US unemployment claims release on the currency pair’s valuation. A slight decline on past week’s data are forecast to provide some risk demand. Data from the labor department today is assumed to show a decrease in the number of individuals who filed for unemployment insurance for the first time. Economists estimate a drop to 361,000 people, after the prior release showed that 366,000 individuals filed for jobless insurance. A steeper dive could lead to a reversal of the Greenback’s advances.

Aviv N. Shapiro is a Senior Research Analyst and Business Development Officer for AlgosysFx.