Forex - USD/CAD weekly outlook: January 16 - 20

Forexpros - The U.S. dollar rose to a four-day high against its Canadian counterpart on Friday, trimming some of the week’s losses as safe haven demand found support after ratings agency Standard and Poor’s downgraded nine countries in the euro zone, including France.

USD/CAD hit 1.0283 on Friday, the pair’s highest since January 9; the pair subsequently consolidated at 1.0228 by close of trade on Friday, shedding 0.45% over the week.

The pair is likely to find support at 1.0139, the low of January 11 and resistance at 1.0308, the high of December 21.

The greenback was broadly higher on Friday after S&P cut ratings on Italy, Spain, Cyprus and Portugal by two notches and downgraded Malta, Slovakia and Slovenia by one level. Germany kept its triple-A rating.

French Finance Minister Francois Baroin said the loss of the triple-A rating was "not a catastrophe'' and stressed that France still had a solid AA+ rating.

Earlier Friday, an auction of Italian government debt met with weak investor demand, one day after an auction of Spanish government debt met with solid investor demand at sharply lower yields.

Meanwhile, talks aimed at negotiating a restructuring of Greece's debts broke down amid disagreements over how much money investors will lose by swapping their bonds, raising fears over a possible default.

Also Friday, official data showed that Canada’s trade balance rose unexpectedly to CAD1.1 billion in November from a deficit of CAD0.5 billion the previous month.

Analysts had expected Canada’s trade deficit to remain unchanged in November.

Sentiment improved on Thursday after European Central Bank President Mario Draghi said the bank saw signs of stabilization in the region’s economy, adding that the central bank’s recent refinancing operation had made a substantial contribution to improving the funding situation for banks.

The comments came after the ECB left the benchmark interest rate unchanged at 1.0%.

In the U.S., data on Thursday showed that the number of people who filed for unemployment assistance in the U.S. last week unexpectedly rose to 399,000 from 375,000 the previous week.

A separate report showed that U.S. retail sales rose less-than-expected in December.

Meanwhile, data showed that new house price inflation in Canada rose more-than-expected in November, ticking up 0.3% after a 0.2% increase the previous month.

Analysts had expected house price inflation to rise 0.2% in November.

In the week ahead, investors will be keeping a close eye on developments in the euro zone, amid concerns over the increased risk of sovereign debt contagion, while investors will also be looking ahead to U.S. data on inflation and the housing sector. The Bank of Canada is also to announce its benchmark interest rate.

Ahead of the coming week, Forex Pros has compiled a list of these and other significant events likely to affect the markets.

Monday, January 16

Markets in the U.S. are to remain closed for a national holiday.

Tuesday, January 17

Canada is to publish official data on foreign securities purchases. The Bank of Canada is to announce its benchmark interest rate.

Meanwhile, the U.S. is to publish the Empire State Manufacturing index, an important gauge of economic health.

Wednesday, January 18

The U.S. is to release government data on producer price inflation, followed by data on net foreign purchases of long-term securities, which is the balance of domestic and foreign investment. The Federal Reserve is also to produce its capacity utilization rate, a key gauge of consumer inflation, as well as data on industrial production. The country is also to publish official data on crude oil inventories. The data can be a big market mover for the loonie due to the size of Canada's energy sector.

Meanwhile, the Bank of Canada is to release its monetary policy report, followed by a press conference.

Thursday, January 19

Canada is to release official data on manufacturing sales, an important gauge of economic health.

The U.S. is to publish government data on building reports, an excellent gauge of future construction activity, as well as a government report on consumer price inflation. Later in the day, the U.S. Department of Labor is to release data on unemployment claims, followed by official data on housing starts and a separate report on manufacturing activity in the Philadelphia area. 

Friday, January 20

Canada is to release official data on consumer price inflation, as well as wholesale sales, a leading indicator of consumer spending.

The U.S. is to round up the week with a report by the National Association of Realtors on existing home sales, an important gauge of economic health