Forex - USD/CAD weekly outlook: 10-14 October 2011

Forex News – The U.S. dollar ended the week lower against its Canadian counterpart on Friday, as market sentiment recovered after the announcement of fresh European measures to tackle the region's debt crisis and better-than-expected U.S. nonfarm payrolls data.

USD/CAD hit 1.0233 on Friday, the pair's lowest since September 28; the pair subsequently consolidated at 1.0391, shedding 0.92%.

The pair is likely to find support at 1.0233, the low of October 7 and resistance at 1.0570, the high of October 5.

The greenback tumbled to a seven-day low on Friday, as risk sentiment strengthened after the U.S. Department of Labor said nonfarm payrolls rose by 103,000 in September, far more than the expected 53,000 gain, while payrolls for the previous two months were revised up by a total of 99,000.

But the U.S. dollar rebounded, trimming some of the week's losses after Fitch ratings agency downgraded its rating for Italy to A+ from AA-, and cut Spain’s rating to AA- from AA+, adding to concerns over the worsening euro zone debt crisis.

The U.S. dollar rose to a ten-month high on Tuesday, after European finance ministers postponed a decision on Greece's next bailout tranche until mid-November, boosting demand for safer assets.

Also Tuesday, Federal Reserve Chairman Ben Bernanke said that the U.S. economic recovery has been far less robust that the Fed had hoped, adding that the central bank was ready to do more to help the U.S. economy.

The U.S. dollar dropped on Wednesday as market sentiment recovered, after the International Monetary Fund said it was considering buying Italian and Spanish bonds, and after outgoing European Central Bank president Jean-Claude Trichet said on Thursday that the central bank was to launch operations to extend liquidity to European lenders.

The ECB also left its interest rate unchanged at 1.5%.

Meanwhile, on the New York Mercantile Exchange, light sweet crude futures for delivery in November traded at USD82.72 a barrel by close of trade on Friday, jumping 4.78% over the week, the largest weekly gain since early March.

Raw materials, including oil account for about half of Canada’s export revenue.

In the coming week, developments in the euro zone look likely to remain in the spotlight. Meanwhile, investors will be looking towards Friday’s U.S. data on retail sales to gauge the strength of the U.S. economic recovery.

Canadian data on housing starts and house price inflation will also be in focus.

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

Monday, October 10

Markets in Canada will be closed for the Thanksgiving holiday.

In the U.S., debt markets will remain closed for the Columbus Day holiday, while stock markets will be open as usual.

Tuesday, October 11

Canada is to produce government data on housing starts, a leading indicator of health in the housing sector.

Also Tuesday, the U.S. is to publish data on economic optimism.

Wednesday, October 12

Canada is to publish official data on house price inflation, a leading indicator of economic health.

Meanwhile, the Federal Reserve is to publish the minutes of its most recent policy-setting meeting.

Thursday, October 13

Canada is to publish data on its trade balance, the difference in value between imports and exports over the reported month.

Meanwhile, the U.S. is to release its weekly government report on initial jobless claims, as well as data on the federal budget balance, the trade balance and crude oil stockpiles. Crude oil data can be a big market mover for the loonie, due to the size of Canada's energy sector.

Friday, October 14

Canada is to produce government data on manufacturing sales, a leading indicator of economic health.

The U.S. is to round up the week with official data on retail sales, the foremost indicator of consumer spending, which accounts for the majority of overall economic activity. The U.S. is also to publish official data on import prices and business inventories. In addition, the University of Michigan is to publish preliminary data on consumer sentiment and inflation expectations.

Also Friday, the G20 Group is to hold the first day of a two-day summit meeting.