Tuesday’s ETF Chart To Watch: CurrencyShares Canadian Dollar Trust (FXC)

by on December 6, 2011 | ETFs Mentioned:

Investors came back in a buying mood after the weekend, although domestic equity indexes lost momentum after it was reported that Standard & Poor’s would put all 17 Euro zone member nations under credit review. Nonetheless, optimism continues to build on Wall Street as the Nasdaq gained 1.10% on the day, while the Dow Jones Industrial Average lagged behind, turning in a solid 0.65% gain. “There are growing hopes on both sides of the Atlantic that policy makers will play a more constructive role in helping the economy and markets after a year in which they generally did more harm than good,” wrote David Kelly, chief market strategist at J.P. Morgan Funds. Gold prices started off the week on a fairly weak note, losing ground throughout the trading day and settling near $1,725 an ounce.

The Bank of Canada is slated to announce its decision regarding interest rates before the opening bell on Wall Street today, which makes the Rydex CurrencyShares Canadian Dollar Trust (FXC) our ETF to watch for the day. Analysts are expecting for the rate to remain unchanged at 1%, although volatility in the currency markets may develop depending on how investors digest the economic commentary released by the bank after the interest rate decision itself [see ETF Insider: Volatility Is Still Lurking].

Chart Analysis

The Canadian dollar has faced serious headwinds in the currency markets as ongoing Euro zone debt woes have weighted down on investors’ confidence given the cloud of uncertainty looming over the global economic recovery. When considering the chart below, it appears that FXC recently topped at $105.59 a share on 7/27/2011, then proceeded to bottom out at $93.29 a share on 10/4/2011. FXC has considerable support around the $94 mark seeing as how it held support near this level twice, once on 10/4/2011 and more recently on 11/23/2011 [see Warning: Use Caution When Investing In Currency ETFs Of Commodity Dependent Nations].

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Establishing a long position in FXC is quite lucrative at current levels given the potential for upside, although, downside risks remain seeing as how FXC is trading below its 200-day moving average (yellow line)

Outlook

If the Bank of Canada issues a bullish economic outlook following the interest rate decision, investors may find themselves in a buying frenzy for the Canadian dollar in the currency markets [see Easy-As-ABC ETFdb Portfolio]. Likewise, FXC could work its way higher towards $100 a share, in which case we would advise short-term traders to lock-in profits seeing as how this is a significant level of resistance which FXC failed to summit recently in late October. On the other hand, if Euro zone debt woes continue to weigh down on Canada’s economic outlook, FXC may very well encounter selling pressures. In terms of downside, this ETF could re-test support at the $96 level, while the next level of support comes in at $94 a share. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.

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Disclosure: No positions at time of writing.