Good news from the Euro zone lifted investor’s spirits on Monday as equity markets cheered on agreement talks aimed at restoring financial stability in the debt-burdened country bloc. Earnings results from Caterpillar boosted domestic equity indexes higher after the construction giant reported a better-than-expected profit of $1.14 billion. Encouraging commentary from the company cited that low interest rates in the U.S. and Europe will help drive GDP growth going forward. Gold futures charged higher on Monday alongside equities, with prices for the precious yellow metal settling around $1,650 an ounce for the day.
The Bank of Canada is announcing its interest rate decision later day, which makes the CurrencyShares Canadian Dollar Trust (FXC) our ETF to watch [see FXC Fact Sheet]. Analysts are expecting for the rate to remain unchanged at 1%, although investors will likely pay more attention to the forward looking economic commentary released after the interest rate decision itself [see our New Euro Free Europe Portfolio].
Since topping out at $105.59 a share on 7/27/2011, the Canadian dollar, as represented by FXC, has come under serious downward pressure. FXC appears to have established support somewhere around the $94 level, and this ETF is up close to 5% since bottoming out at $93.29 a share on 10/4/2011 [see Warning: Use Caution When Investing In Currency ETFs Of Commodity Dependent Nations]. The fund managed to end last week higher, closing above its previous resistance at the $98 level. FXC appears to be headed higher so long as news out of Europe doesn’t spook investors, potentially forcing them to jump ship from the loonie and flee to the “safer” U.S. dollar [also see Definitive Guide To Short Dollar ETFs].
FXC struggled all of last week to hold onto the $98 level, and the the fund’s ability to close above this level of resistance for two consecutive days in a row is by all means a bullish indicator [see FXC Technicals]. Investors looking to get in long at current levels ought to consider waiting until this ETF back above $100 share or its 200-day moving average (yellow line), depending on individual risk preference.
If the Bank of Canada releases bullish commentary regarding the nation’s economic outlook following the interest rate decision, then FXC could very well trek higher as traders scramble to buy up the Canadian Dollar in the currency market [try our Free ETF Screener]. In terms of upside, FXC can easily rally towards, and perhaps past, the $100 level, at which point we would advise conservative short-term traders to consider taking profits, given that this is a fairly significant resistance level [see O Canada ETFs]. In terms of downside, we advise investors to consider exiting this long position if shares close below the $98 level, with the next level of support coming in at $96, followed by $94 a share. 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.