Canadian dollar surges sharply today and remains firm after a solid retail sales report which showed 0.8% mom growth in October with ex-auto sales up 0.2% mom. USD/CAD's failure to break 1.0748 resistance last week is followed by a break of 1.0570 support today which suggests that the choppy consolidation from 1.0851 is still in progress with another fall just started. EUR/CAD also dives through 1.5183 support as we anticipated in daily report today and is set to extend the rise towards 2008 low of 1.4716.

/

Swiss franc remains firm after SNB quarterly bulletin which said that the inflation outlook has not changed since the September assessment, and it confirms that the expansionary monetary policy cannot be maintained for the next three years because price stability will be compromised in the long term. The bank also warned of risk of swift correction in monetary policy which could trigger deflation. It's believe that at some point, SNB will intervene again to prevent excessive appreciation of the Swiss franc to avoid the deflation risk. However, the bank declined to comment on the possibility of intervention for the moment.

Released earlier, Japan recorded a trade surplus for the 10th straight month in November and widened slightly up to 0.49T JPY. Exports dropped -6.2% yoy and was the smallest decline in 14 month. On the month-to-month bases, exports rose 4.9%, which was the biggest rise since 2002. Imports dropped -16.8% yoy, also the slowest decline in 12 months. The data argues that demand, both domestic and international, is gradually improving and Japan might be able to avoid a double-dip recession as Asian economies recover further next year.

BoJ monthly report showed that the bank is slightly more cautious on outlook of exports and production, which are expected to moderate. The report said that the uptrend in exports and production is expected to continue, reflecting continued improvement in overseas economic conditions, although the pace of the increase is likely to moderate gradually. The overall assessment was largely unchanged though as Japan's economic conditions are likely to continue improving, although the pace of improvement is likely to remain moderate for the time being.

Looking at the dollar index, an short term top might be in place at 78.14 and some consolidation would be seen in near term. Pull back to 4 hours 55 EMA (now at 76.78) cannot be ruled out but downside should be contained by 76.60 support which is close to 38.2% retracement of 74.19 to 78.14) and bring rally resumption. The index should have made a medium term bottom at 74.10 already and we'd expect stronger rebound to 38.2% retracement of 89.62 to 74.19 at 80.08 in the least bullish scenario.

/

USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.0616; (P) 1.0671; (R1) 1.0714; More.

USD/CAD's failure to take out 1.0748 resistance and subsequent sharp fall and break of 1.0570 support today indicates that consolidations from 1.0851 is still in progress. Intraday bias is flipped back to the downside and deeper decline could now be seen to 1.0405 support and possibly below. Nevertheless, we'd expect downside to be contained above 1.0205 support to conclude the consolidations and bring rise resumption. On the upside, break of 1.0744/48 resistance zone will indicate that consolidation from 1.0851 has completed and rise from 1.0205 is resuming for 1.0851 resistance and 1.1101 resistance next.

In the bigger picture, a medium term bottom might be in place at 1.0205 with bullish convergence conditions in daily MACD. As noted before, fall from 1.3063 is viewed as a correction to long term rise from 0.9056. Such correction might have already completed with three waves down to 1.0205 already (1.0784, 1.1732, 1.0205). Break of 1.1101 resistance will confirm this case and target 61.8% retracement of 1.3063 to 1.0205 at 1.1971 at least. On the downside, break of 1.0205 will invalidate this view and bring down trend resumption to parity instead.

USD/CAD