The March Canadian Dollar is getting hit hard this morning as traders continue to flock to the safety of the U.S. Dollar. Weakness in the Euro is encouraging the deleveraging of commodities and equities, triggering higher demand for lower-yielding assets. This trend is expected to continue as institutions and investors brace for a possible mass downgrade of Euro Zone nations.
On Tuesday the U.S. Federal Reserve sounded the alarm that could be helping to weaken the Canadian Dollar. The central bank cited the turmoil in Europe as one of the reasons why the U.S. economy is vulnerable to an economic slowdown. In addition, it passed on a chance to increase its commitment to additional quantitative easing and stimulus. The statement implies that other nations including Canada are also subject to the problems in Europe. Furthermore, the U.S. Dollar was not weakened since the Fed passed on additional stimulus.
Technically, the March Canadian Dollar broke through the Fibonacci retracement level of the .9485 to .9923 range at .9652. This level is expected to become new short-term support. The next level of support is the uptrending Gann angle at .9615, followed by .9550. Of course, oversold conditions could lead to a short-covering rally; however, with sentiment so decisively bearish, traders can expect a rally of this sort to be met with fresh shorting pressure. Other than technical analysis factors, there doesn’t seem to be much that could help put in a bottom or trigger a change in trend over the near-term.
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