By DailyFX – Dour Data Leads To Yen Beating – USDCAD.Thin Volume Propels Dollar.With holiday cheer still in air, traders took advantage of thin market… … conditions in pushing the dollar higher against the Canadian counter.

Expectations still are running high of continued interest rate increases
by the Federal Reserve and as a result, investors are booking it for a
carry capture. Here, traders are anticipating profits from not only the
price appreciation but also the interest rate gap between the two
economies. Interestingly enough, U.S. economic data was suggestively
bearish. According to the Richmond Federal Reserve's monthly
manufacturing report, activity slowed for the month of December. The
overall index declined to a negative 2 reading against expectations of a
positive 10 print as employment and new orders components slipped.
Nonetheless, given the recent quarter's bullish figures, the market
seems resolved in at least one more rate hike to 4.5 percent. Adding to
the Canadian downside, crude oil contracts slipped on the New York
Mercantile Exchange. Falling to $57.92, bearish selling continued on
the day as warmer than expected temperatures are forecasted to continue
in the Northeast and Midwest United States.

Technically Speaking
Spiking off of 1.1651 (50 percent fib from the weekly move), the price
action seems to be finding a temporary ceiling at the previous
resistance of 1.1745. Such a move, albeit propelled by thin activity,
looks ripe for a temporal adjustment in the near term. First floor
posed will be the 1.1706 figure (23.6 percent fib level) with a
formidable barrier at 1.1676 (38.2 percent fib).

EURJPY

Carry Potential
Further carry potential ensued in the EURJPY currency cross as the
rather down Japanese data continued to place pressure on the yen.
Currently, with the Japanese economy sporting a zero interest rate
monetary policy, investors will be able to capture 225 basis points
between the two economies. Adding to further downside on the yen,
household spending figures dipped in the month. Expected to rise 0.1
percent in the month, domestic spending actually declined 0.7 percent.
The figure was considerably disappointing as the decline follows a 1.2
percent surge in the previous month. Additionally, unemployment rose in
the economy, jumping from the 4.5 percent seen in October to 4.6
percent. The rate was expected to decline to 4.3 percent as economists
expected companies to continue hiring in the face of higher
productivity. With domestic demand and subsequent spending still on the
low, the current momentum in the economy remains mild compared to a
fiery entrance into 2006. As a result, policy makers may have more ammo
than previously expected in justifying a continuance in the current
rate.

Technically Speaking
Finding a bottom at the 137.59 support floor, the currency cross has
jumped hitting a temporary resistance ceiling at 139 (78.6 percent fib
from the weekly move). Consolidating at the moment, the price action
looks to favor further upside with a penetration of the aforementioned
level. Given the strength of the current figure holds, the drop to the
138.70 support would be indefinite with a halt at the 138.49 figure (50
percent fib level) where consolidation had previously established a
barrier.

USDJPY

Dour Data For The Yen
Although data was overall down on the Japanese currency, there still
remained some light of hope as nationwide sales rose more than expected.
Nationwide department sales actually rose 3.2 percent in the month of
November against a 0.1 percent blip seen last month. Weakly considered
bullish for the yen, the figure may only be reflective of the holiday
season and considered temporary. However, should the market see two
consecutive increases on that level, the good vibes may spill into the
overall picture, lifting suggestions of a near term pickup in overall
spending. Nonetheless, players continued to seek out carry candidates
and the USDJPY was not excluded. Sporting 425 basis points between the
world's largest and second largest economies, the USDJPY pair
continued to be the carry fav as we exit 2005. Additionally,
inflationary suggestions remained weak as consumer prices continued to
decline. This would lead policy makers in axing any suggestions to
raise interest rates leading to further near term momentum in the
greenback's favor.

Technically Speaking
Spiking through previous resistance levels, the momentum seems to be
waning slightly as the price action consolidates. However, further
upside should not be a problem in the near term as the pair approaches
the previous ceiling at 1.1758. A failure would definitively see a test
of the 1.1719 (23.6 percent fib level from the week's bull move)
before further consolidation at the 116.87 (38.2 percent fib level)
figure.

By DailyFX

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