North American Indices: Economic Fears Increase Resistance

MarketTrends: October 30, 2009

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

October, a month that started out with a big market rally appears to be set to close out on a sour note. Indices appear to be giving back all of yesterday’s post US GDP gains and more, suggesting that there remain significant fears over economic growth and market valuation out there. Despite the weakness it still looks as though indices may finish the month higher than where they started which suggests that this remains a correction for now rather than a new downswing.

Because its possible that part of today’s decline may be due to profit-taking and a reluctance to take on new positions ahead of month-end (and the fiscal year end for Canadian banks), reaction to Monday’s US manufacturing PMI report may give a better reading of investor sentiment heading toward the end of the year.

Dow Industrials (US30 CFD) have dropped below the 9,750 level on their third day of trying with next support near 9,600 followed by 9,400 with resistance in the 9,900 to 10,000 range. The S&P/TMX 60 (Toronto60 CFD) fell back under 650 today and has been holding near 640 with next major support closer to 590 and resistance near 660 then 690.

Commodities Update: A Halloween Fright For Resource Markets

Commodities have been under pressure today as the USD has rebounded and equity declines have suggested a more cautious tone. Copper has fallen back under $3.00/lb but $2.90 support has been holding. US crude oil has dropped under $77.50/bbl with next support near $74.00. Natural gas continues to take it on the chin, dropping 6.4% on warmer weather to test $4.25/mmbtu support. Precious metals have been mixed with gold holding near $1,040/oz but sentiment toward silver has been trembling as it falls back to $16.25/oz. Grains have also taken a hit today, particularly wheat which broke down below $5.00/bushel.

Canadian Dollar Today: Canadian GDP May Have Spooked Loonie Supporters

Although the loonie had been softening in the wake of another USD rebound and equity market retreat, selling pressure against CAD appeared to intensify after Canada’s monthly GDP for August fell short of expectations (-0.1% vs street +0.1%) may have spooked investors. This combined with falling commodity prices appears to have sent the loonie relatively lower against most key currencies.

CADUSD Notes

CADUSD dropped like a stone after the monthly GDP report, breaking $0.9340 support, which may become new resistance. Toward the later stages of trading, the pair appears to have stabilized in the $0.9240-$0.9260 range.

USDCAD Notes

USDCAD soared after the monthly GDP report, charging through $1.0700 resistance, which may become new support. Toward the later stages of trading, the pair appears to have stabilized in the $1.0775-$1.0825 range.

Other CAD Pairs Notes

GBPCAD continues to recover from recent multi-decade lows. Currently trading near $1.7750, a retest of $1.8000 resistance appears possible in the near term with support near $1.7500.

EURCAD has been climbing within an established $1.5250 to $1.6100 trading channel and has been approaching a test of resistance near the $1.6000 level.

AUDCAD continues to show signs of topping. For the second time in a week, an attempt to break through long-term resistance at $0.9800 quickly failed and today has seen the pair bashed back toward a test of support in the $0.9675 to $0.9700 range.

CADJPY has been quite soft today, indicating that a defensive flow of capital may be underway. The pair has dropped to test 83.00 support with next key support near 80.50 and resistance still intact at the 86.00 level.