Major equity benchmarks posted mixed results on Thursday as profit taking pressures inevitably resurfaced following the stellar run-up seen earlier this week. Mixed economic data releases on the day only added to the bull’s sense of urgency to lock-in profits ahead of the weekend; housing starts and weekly jobless claims came in worse-than-expected while inflation worries subsided after U.S. CPI dropped down to 1.7% from 1.9% previously [see also The Cheapest ETF For Every Investment Objective].
Our ETF to watch for the day is the CurrencyShares Canadian Dollar Trust (FXC, A), which could swing in either direction at the opening bell as investors react to the latest Canada CPI release. Analysts are expecting for inflation to come in at 1.2%, which would mark a modest decline from the previous reading of 1.4%.
Consider FXC’s one-year daily performance chart below. The Canadian dollar has dragged along sideways with a downward bias thus far on the year, failing to take part in the strong rally seen across the global equity market. Despite its disappointing start in 2013, FXC does appear to be regaining some bullish momentum over the past two months; notice how this currency fund has managed to hold above $97 a share, which appears to be a key support level (red line) as it was tested twice. Furthermore, FXC has posted higher-highs (blue line) since bottoming out in early March, which suggests that buyers are in fact returning here [see How To Swing Trade ETFs].
FXC offers a good entry point at current levels for those with a bullish outlook for the Canadian dollar; nonetheless, traders should utilize a tight stop-loss near the recent lows since FXC is still technically in a downtrend when considering that it is trading below its 200-day moving average (yellow line) [see also How To Use A Pairs Trading Strategy With ETFs].
If Canada’s inflation rate comes in higher-than-expected, FXC could see the wind at its back on the day; in terms of upside, this ETF has resistance around the $99 level. However, if CPI comes in well below expectations, slow-growth fears could sink the Canadian dollar; in terms of downside, FXC has major support just underneath $97 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.