North American Indices: Correction Continues Ahead of US GDP Data

MarketTrends: October 28, 2009

Issued by Colin Cieszynski, CFA, CMT, Market Analyst/Education Manager, CMC Markets Canada

Equity markets continue to decline today. Although the torch has passed from US consumer confidence to US new home sales (402K vs street 440K) as the excuse of the day, with markets still trading well above lows set earlier this month, we still appear to be in more of a normal trading correction within the recovery trend that started in March. It also appears possible that we may be seeing some concerns over tomorrow’s US Q3 GDP report, particularly in the wake of last week’s UK GDP disappointment.

Today, the Dow Industrials (US30 CFD) have been trading in the 9,800-9,900 range, with additional support possible near 9,600, followed by 9,400 then 9,250-9,300 with further upside resistance near 10,000 then 10,150. While the Dow remains well above the low set earlier this month near 9,400, the S&P/TMX60 (Toronto60 CFD) has been testing its October low today near 645 and could fall to retest the 625-635 area should that be breached.

Commodities Update:

Commodities also have been retreating today reflecting fears over the implications of a potentially soft US GDP report on global resource demand, combined with a rebound in the US Dollar. Copper, for example, has dropped back from the $3.00/lb level, back into the low $2.90s, while silver has declined into the $16.00-$16.25/oz range, gold has fallen back to test support in the $1.025-$1,030/oz range, and wheat has broken down through $5.00/bushel once again.

The energy group has also been sliding today led by gasoline, which fell 3.6% and broke down through $2.00 on a weak inventory report (+1.62 mmbls vs street +1.0 mmbbls). This overshadowed a better than expected crude report (+0.78 mmbbls vs street +1.9 mmbbls). Crude has dropped back to test support near the lower end of its $77.50-$80.00/bbl today. Natural gas has been falling off ahead of tomorrow’s inventory report, testing support near $4.30/mmbtu.

Canadian Dollar Today:

The selloff in the loonie continued to accelerate today. Although last week’s Bank of Canada comments started to turn the tide against CAD, recent declines in equity and commodity prices and a USD rebound all appear to be weighing the loonie down. Note though that the bigger the decline, the less likely the Bank of Canada may feel the need to intervent in currency markets.

CADUSD Notes

CADUSD broke down through its 50-day average today near $0.9340 and continued to trend lower. While initial support may appear near $0.9260, a retest of the 100-day average near $0.9150 or the early October low near $0.9125, appears possible in the near term.

USDCAD Notes

USDCAD blasted through its 50-day average today near $1.0700 and continued to trend higher. While initial resistance may appear near $1.0800, a retest of the 100-day average or the early October low near $1.0950, appears possible in the near term.

Other CAD Pairs Notes

GBPCAD appears to have started another upleg, breaking through $1.7600 resistance today. Next key upside resistance test appears near the $1.8000 level although a measured move suggests a possible test of $1.8100.

EURCAD, on the other hand, remains range bound, trading in the $1.5700-$1.5900 area with additional resistance possible near $1.6000.

AUDCAD continues to retreat after failing to decisively break through the key $0.9800 resistance level. Initial support appears near $0.9625 followed by $0.9500.

CADJPY has dropped off quickly after taking out the 86.00 level, testing 84.00 support for now with next downside support near 82.50 and 81.25.

Asia Pacific Market Preview:

Asian markets sold off sharply last night and tonight’s activity may give an indication of the strength of the current downward momentum in global equity markets. A number of key support levels may be tested, including 21,600 for the Hang Seng (HongKong33 CFD) with next support near 21,200; 4,600 for the S&P/ASX 200 (Aussie200 CFD) followed by support in the 4,400-4,500 range; and 9,900 for the Nikkei (Japan225 CFD) followed by support near 9,600. Uside resistance levels on a rebound appear near 22,300 for the Hang Seng, 4,750 for the Aussie and 10,200 for the Nikkei.