Published August 8th, 2006 - 01:44 GMT

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The Australian dollar didnt stand a chance against the powering Canadian dollar during the session as oil correlated action supported the downside move.  In the first trading session of the week, the market sold off the Australian dollar following the Dun and Bradstreet August business expectations survey.  For the month, businesses were said to have the worst readings in expectations since the 1991 recession.  Both profit and sales projections were to the downside, sliding further lower at a negative 15 and 7 percent assessments.  However, in the Aussie favor, the survey purported wider sentiment that inflationary pressures were here to stay, supporting another 25 basis point move by the Reserve Bank of <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Australia.  Price action looks to be capped in the intermediate term at the 0.7680 figure with expectations that employment data released later in the week will turn negative for the Aussie.

Comparatively, the Canadian dollar was boosted by commodity based action as a major pipeline into the worlds largest economy was shut down.  Earlier in the morning, BP Plc in London stated plans to shutdown the biggest US oil field in the U.S. as 3 miles of pipeline was said to have major leaks and corrosion.  Responsible for 400,000 barrels a day or 8 percent of the U.S. productive capacity, the pipeline will take several months to repair and couldnt have come at a worse time.  The news boosted crude oil contracts higher in the session, breaching the $77 mark and helping a long a rather tepid performance by the Canadian dollar.  Aside from fundamentals the move was exacerbated as Canadian market remained on Holiday.



Major buying in the USDCAD prompted cross bidding in the EURCAD currency cross pair in the overnight.  Boosted by the halt in oil production over the largest US oil field, the Canadian dollar move was exacerbated by rather on par figures for PMI in the Euro zone.  Mostly meeting or falling slightly below consensus, the figures reflected a slight slowdown in the economy and added to Cad bullishness on the day.  With Canadian markets on hold for the holiday today, further selling looks insured at the open tomorrow as traders return to find the considerable difference.  As a result, with the intraday low likely to be broken once again, momentum players may be seeking to find sellers on pullbacks.  Discounting the imminent FOMC meeting tomorrow afternoon in the US, traders will be eyeing Euro zones largest economy.  Tomorrow, German trade balance figures and industrial production will garner much of the markets focus.  Why?  With interest rates likely to keep rising toward year end, the market is in need for confirmation that at least the foundation is there for sustained growth in the state.  However, expectations maybe disappointed as industrial production is expected to slump slightly against last months read.

Technically speaking, the next test seems to be at support in the EURCAD cross as the pair begins to consolidate in the Asian session.  Taking out the 1.4450 top side support in the 60 minute chart, the next realm of bidding to emerge looks to surround the 1.4325 figure, where the price tested almost three times before.  Overall longer term downtrend remains intact, as the upper trend line on the daily continues to support bearish notions, with a pullback to 1.4450 capping any momentous gains in the short term.




Rounding out the top three market movers on the day, the CADJPY cross was bid higher on pretty much the same reasons as the other two decliners.  However, worsening the Canadian dollar favoritism on the cross were tepid economic figures released in the worlds second largest economy.  Declining in line with consensus figure, the Japanese leading economic index dipped to a 50 percent reading from an earlier 77.3 percent.  Although highly regarded as a simple compendium of previously released indicators, the survey weighed on the market as a suggestion of slower times to come.  However, running contradictory was the coincident index, which rose in line with estimates.  Both reports are likely to be coupled with this weeks Bank of Japan monthly report and gross domestic product in leading to some downside in the major currency pair against both the dollar and crosses.  


Additionally weighing on the Japanese yen during the session were flows on possible repatriation as the market is expecting almost $80 billion in repatriated funds on US based assets.  Should this follow through, it may serve as the spark to near term Yen strength as the market continues to view the yen as currently undervalued.


Bouncing off of the 101 support floor, the CADJPY cross has been brought higher and now resides consolidating and testing the upper trend line on the daily time frame.  The 60-minute chart bolsters the resistance notion and may serve to cap todays gains in the short term.  However, should momentum extend the rally higher, bulls look to take out the 103 handle on a confluence of the longer and short term trends.  A failure, comparatively, would leave bears in charge at the 102.44 (23.6 percent fib from the intrasession move) figure and potentially bottoming at the 101.93 figure.









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