Canadian housing starts fall short

ForexNewsNow | Published on November 8, 2010 at 9:29 am

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intraday analysis - the Canadian FlagNEW YORK (Forex News Now) – This morning saw the release of the Canadian housing starts figures, coming in below consensus at 168,000 new homes, compared to the estimated 181,000 figure that economists were looking for.

As the number was a miss, it is no surprise that the Canadian dollar finds itself on the back foot, as its FX rate is falling. While housing starts were a disappointment, this is not the only thing that is weighing on the FX rate of the Canadian dollar.

On the attached chart below, you can see that the FX rate of the Canadian dollar versus the greenback has been stuck in consolidation for quite some time. This is partly due to the fact that the economies are so intertwined. For example, Canada exports much of its oil to the United States. But if the United States finds itself with a soft economy, often oil imports will slowdown.

This phenomenon actually hurts Canada since their biggest customer is in buying as much. Lumber is also another commodity to Canada exports in large quantities the United States. With a weak housing market in the United States this is not a candidate all.

The consolidation area that is clearly marked on the chart below, actually started roughly one year ago. Also particular interest is the bar for weeks ago, on this weekly chart that formed a hammer right at the parity level. Judging from the looks of the charts over the last year, it appears that the parity level has gained its psychological value again. Perhaps traders are learning to respect the parity level, after slicing through it several times two years ago.

As is marked on the chart below, you can clearly see that there is support at the parity level, and resistance at the 1.0700 level. Until we can get a sustained break below the parity level on at least the daily chart, traders would have to assume that the FX rate will continue to attempt to balance from 1.0000 to the 1.0700 handle.

USDCAD Nov 8

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