Posted: 22 Jun 2010 04:03 AM PDT

Canada’s Consumer Price Index (CPI) rose by 0.3%, slightly stronger than 0.1% that was expected. But Core CPI, which is more closely watched by the central bank, met expectations and rose by 0.3%. USD/CAD makes a small rise and gets away from the support line.

After a jump of 0.7% in Core CPI in February, it seemed that prices would be on the rise, making a more speedy rise in prices. But the next month saw a drop in prices (-0.2%) and while there was a small surprise last month – 0.3% rise instead of 0.2%, inflation is still under control.

CPI, which is expected to be more volatile rose by 0.3% last month. When Core CPI fell, it only remained unchanged – 0%. This controlled inflation means that the central bank’s tightening cycle will be slower.

USD/CAD now trades at 1.0230, up from 1.0215 before the release. A small rise, but still getting away from the 1.02 line, which was the 2009 low.

The pair made a move lower last week as it slid down the 1.02 – 1.04 range and closed the week near 1.02. Indeed, at the wake of the new week, with the Chinese announcement fueling commodity currencies, USD/CAD made another move downwards and went as low as 1.0140, but this move was temporary and the pair returned back above 1.02.

A retreat of the loonie will meet resistance at 1.04, followed by 1.0560 which was a pivotal line in recent weeks. This is followed by 1.0750, which is a very strong resistance line.

A new break below 1.02 will open the road for parity, last visited in April. Below the ultimate line of parity, 0.98 is the next line of support, followed by 0.97. USD/CAD needs a leap in oil prices or another rate hike to approach these areas.

The Bank of Canada made its first rate hike since the crisis three weeks ago. Mark Carney lifted the rate by 0.25% to 0.5%. The rise in the price of oil that we’ve seen recently increases the chances of another rate hike.

Canada’s economy benefits from higher oil prices, as it exports this “black gold”. In addition, it contributes to rising prices, and a rate hike is a strong measure to counter inflation.

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EUR/USD Stalls on Good Ifo Business Climate

Posted: 22 Jun 2010 01:01 AM PDT

The German Ifo Business Climate, a figure which is usually better than other European indicators, unexpectedly rose once again. EUR/USD, that didn’t really enjoy the Chinese news, reacted with a small rise that was erased quickly.

Early expectations stood on a minor drop from 101.5 to 101.2, but another gain was seen to 101.8 points. In the past year, this wide survey of 7000 businesses showed steady growth, even when other indicators such as the ZEW Economic Expectations survey began falling. This moves the common currency:

EUR/USD made a small rise from 1.2310 to 1.2320, but is capped by the 1.2330 resistance line. This better-than-expected result currently doesn’t help the pair.

The European current account, release at the same time, disappointed – a deficit of 5.1 was reported, much worse than a surplus of 1.1 billion euros that was predicted. It’s important to note that the current account is a lagging figure, and that the Ifo Business Climate is of much higher importance.

The Euro had a good start to the week. It opened with a gap and above 1.24. After finding resistance twice at 1.2467, the pair began falling and eventually lost the support level of 1.2330, which was 2008’s low, after Lehman Brothers collapsed.

Towards the release of the Ifo survey, Euro/Dollar recovered from the lows of 1.2284 and traded at 1.2310. But the release rocked it. Support is found at 1.2250 and then at 1.2150 which held the pair before the collapse to the year-to-date low of 1.1876. The round number of 1.20 is also of psychological importance.

A recovery will send the pair for another attempt on the 1.2460 line, followed by 1.2670 which was a swing high.

The Euro-zone is still dealing with serious debt issues that will probably turn into a double-dip recession. Greece, Portugal and Spain suffer from a credit crunch, but austerity measures are taken all across the continent, and also in Britain.

Later today. the new British government will present an emergency budget in parliament.

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Forex Daily Outlook – June 22 2010

Posted: 21 Jun 2010 02:00 PM PDT

US Existing Home Sales on the rise, US Treasury Secretary Timothy Geithner testifies before the Congressional Oversight Panel in Washington DC, and US House Price Index are the major events of the day. Let’s review the today’s activities.

In the US, Existing Home Sales expected an increase of 400,000 above 5.77 M in May. This continuous rise is an excellent indicator for economic growth.

Later in the US, US Treasury Secretary Timothy Geithner testifies on the Troubled Asset Relief Program before the Congressional Oversight Panel, in Washington DC. His speeches often reflect the US President’s economic policies, signaling policy shifts to the public and to foreign governments.

Finally in the US, House Price Index anticipated a drop of 0.1% following May’s rise, reaching 0.2% and Richmond Manufacturing Index is also foreseen to decrease of 5 points subsequent a previous drop reaching 21 points.

In Canada, Core CPI remains unchanged at 0.3% indicating stability in the market while CPI which includes Volatile items anticipated a drop of 0.2%.

Finally in Canada, BOC Deputy Governor Timothy Lane speaks at the CFA Society, in Winnipeg volatility in key interest rates is expected.

For more on USD/CAD, read the Canadian dollar forecast.

In Europe, German Ifo Business Climate is anticipated a slight decrease of 0.3 points reaching 101.2 nevertheless, reflecting an optimistic view of the German market. The firms are considerably more satisfied with their current business situation.

More in Europe, Current Account surplus is expected a reduction of 0.6B since the previous month attaining 1.1B.

Finally in Europe, Consumer Confidence continues to drop reaching -19 points indicating a growing pessimism in the market.

For more on the Euro, read the EUR/USD forecast and Casey Stubbs' latest analysis.

In Great Britain, Annual Budget Release is released outlining the government’s budget for the year, including expected spending and income levels, borrowing levels, financial objectives, and planned investments. An increased spending will indicate market growth.

Read more about the Pound in the GBP/USD forecast.

In Switzerland, Trade Balance is likely to decrease by 500,000K following recent increases.

In New Zealand, Current Account Deficit is in for a great improvement expecting a drop of 3.27B from -3.57B to -0.30B which is excellent news for New Zealand and Credit Card Spending is expected to remain around 1.9%.

That’s it for today. Happy forex trading!

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