Domestic equity indexes sank desperately lower as ongoing Euro zone debt woes paved the way for rampant profit-taking across virtually every corner of the market. Investor confidence further declines as worries over the domestic supercommittee sparked waves of fear that the U.S. would soon be plagued by debt woes of its own. Bullish momentum failed to gain traction on Wall Street despite the better-than-expected new home starts data along with a positive unemployment report. Crude oil gave up much of yesterday’s stellar gains, sinking all the way down to $99 a barrel as the trading session drew to a close. Gold plunged alongside equities as futures prices for the precious yellow metal settled near $1,720 an ounce.
Canada’s Consumer Price Index is slated to come out before the opening bell on Wall Street, which makes the Rydex CurrencyShares Canadian Dollar Trust (FXC) our ETF to watch for today. Analysts are expecting for inflation to come in at 0.1%, a minimal decrease from the previous reading of 0.2% [see For ETF Investors, Currency Exposure Matters].
Since topping out at $105.59 a share on 7/27/2011, FXC endured a rather quick and violent correction, sinking 10% all the way down to $93.29 a share on 10/4/2011. After hitting this recent low, this ETF quickly climbed back above the $94 level, staging a rather impressive comeback in less than one months time. Since bottoming out in early October, FXC gained upwards of 5% until it encountered resistance at the $100 level nearing the end of the month [see FXC Returns].
As the chart clearly shows it, FXC struggled for three consecutive days to establish support at the $100 level, ultimately failing on 11/1/2011, and proceeding to sink back below $98 a share in the days following.
From a technical perspective, FXC appears poised to move lower as it has been drifting sideways, with a downward-bias over the last few weeks. Another worrisome piece of evidence supporting our bearish suspicions is the fact that FXC failed to stabilize at $98 a share after failing to summit the $100 level. This suggests that investors were not willing to step-in even after shares plunged, perhaps alluding to further declines as the Canadian dollar struggles to regain momentum in the currency market [see Warning: Use Caution When Investing In Currency ETFs Of Commodity Dependent Nations].
If Canadian CPI comes in stronger-than-expected, investors may interpret this as a positive sign that the economic recovery is still in-tact. In terms of upside, FXC may soar back above $98 a share, at which point we would advise short-term traders to lock-in profits, since this ETF is still trading below its 200-day moving average (yellow line). On the other hand, a disappointing CPI report may pave the way for selling pressures, potentially bringing FXC all the way down to $96 a share, or perhaps even lower. In terms of price levels, FXC has major support at $94 a share, while significant resistance comes in at the $100 level.
As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.
Disclosure: No positions at time of writing.