For this weeks edition of the SIA Equity Leaders Weekly, we will focus in on how the USD/CAD currency exchange and the 30-year yield rate are affecting the market.
United States Dollar/Canadian Dollar (USDCAD)
Having last looked at the USD/CAD at the end of February, the USDCAD has had little movement. The black trend lines show the directional channel the USD/CAD has been trading in now for the past year and a half sloping slightly downwards. However, the near-term strength has strengthened to a score of 5 out 10 (from 2, prior) with resistance above at $1.0534 which corresponds with the declining long-term trendline. Further strength may then see the next resistance at $1.0852 come into play. To the downside support is now at 0.9827 and again at 0.9351, the low from 2011.
For some time we have seen U.S. Equities outperforming CAD Equities. If additional strength in the USD shows up this could put additional relative pressure on CAD Equities. Should the channel break to the downside this could see the opposite, and bring some of the CAD dollars moving south of the border back into play with the CAD Equity Market.
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CBOE Interest Rate 30 -YR (TYX.I)
The CBOE 30-Year Interest Rate moved down strongly in April after a strong move upwards since the middle of 2012 to March 2013. Currently the yield sits against support at 2.847% after breaking through the upwards trendline. If the weakness of the TYX.I continues, as the near-term SMAX score indicates with a score of 4 out of 10, the support level at 2.682% could now come into play.
This downward movement on the long end of the curve shows us that bonds are being purchased up again putting pressure on the relative outperformance that equities have enjoyed for some time. So far this relative strength in fixed income is only near term so monitoring the TYX.I for a further drop in yields to confirm the recent strength is needed before weighing too deeply into the long end of the bond market.
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