Green shoots, glimmers of hope and rays of light dominated market sentiment last week. The threat of pandemic and the bankruptcy of a major automaker were little restraint. USD/CAD tumbled toward its 200-day moving average at 1.1857. However, although downside risks to CAD have eased in recent weeks, the green shoots have yet to take root. A nasty reversal in USD/CAD is quite possible. Market CAD outlook continues to reflect concerns about the global economy and the potential for double-digit declines in global trade in 2009. The threat of swine flu adds to the downside risks for trade. Efforts by the G20 to boost trade and give the global economy traction could be thwarted by pandemic. With the global economy in its worst downturn since WWII, the swine flu occurs at most inconvenient time.
USD/CAD testing key support. bearish view reinforced
The relentless assault on support USD/CAD is testing several key support levels, although it should be noted that it will take a confirmed close below key levels to provide a strong signal. That said, the 200-day moving average at 1.1859 and key support at the double-bottom at 1.1826, seem to have melted away. While there might be some focus on resistance at 1.2056 and 1.2340, the most intense analysis is going to on where next support levels will appear. The January 6 YTD low at 1.1762 is the key level. Beyond that, watch for support at 1.1661, and then 1.1464, the low hit in early November 2008, on the retracement after the shock rally from 1.03 to 1.30 in October 2008.
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