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FOREX Watch: Loonie dragged to the depths by FOMC, weak performance measures

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FOREX Watch: Loonie dragged to the depths by FOMC, weak performance measures

The Canadian dollar prolonged its losing streak after retail sales declined by a bigger margin than expected, an ominous sign for the country’s GDP reading next week. Retail sales declined 0.6 percent in June, following a gain of 1.8 percent the previous month. The decline was steeper than the median forecast, which called for a 0.3 percent decline. Earlier in the week June wholesale sales were shown to have declined by 2.8 percent through June, compared to a 2.2 percent hike the previous month.

The Canadian dollar plunged to six-week lows against the greenback, as market participants lose confidence in the loonie. The greenback’s gains have been capped in recent weeks as mixed US data clouded the market’s expectations for a Federal Reserve bond taper.

The USDCAD pair breached the 1.05 level multiple times throughout the trade day, consolidating at 1.0521, a gain of 0.45 percent. The pair faces an initial resistance at 1.0527, making way for 1.0553 and 1.0580. On the downside, the pair is supported at 1.0431 and 1.0405.

The US dollar entered a bullish phase against its northern counterpart following Wednesday’s reading of the July FOMC meeting minutes. The market was gradually favouring USDCAD ahead of the minutes, consolidating around expectations for a hawkish reading. The USDCAD has advanced in each of the past four sessions. Over the past five days the pair has advanced more than 2 percent.

Thursday’s trade reflected not only the strengthening bid for the US dollar, but the dwindling near-term outlook on the loonie. The USDCAD pair’s sudden climb has initiated heavy selling interest through the overnight markets, signifying heavy resistance ahead of the 1.06, 1.08 and 1.10 thresholds. The upper levels of these thresholds are expected to be tested sometime before year’s end, before gradual global recovery swings the pendulum in the loonie’s favour in 2014.

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