canadian and u.s. economic outlook: navigating through challenging times

RBC Spring Economic Briefing

Canadian and U.S. Economic Outlook:Navigating Through Challenging Times

ECONOMICS I RESEARCH

Paul Ferley (416) 974-7231Assistant Chief [email protected] 2013

ECONOMICS I RESEARCH 2

Questions to be addressed:

1. What is the forecasted growth for the Canadian economy?

2. What is forecasted to happen with the Canadian dollar exchange rate?

3. What is forecasted to happen with interest rates?

4. What are the major risks on the horizon in 2013?

• Canadian & GTA housing market?

• Eurozone crisis?

• China's slowdown?

• U.S. fiscal policy?


The Gradual Pace of Recovery Leaves the U.S. Economy Vulnerable to Possible

Negative Shocks

U.S. Economic Outlook:


The U.S. economy has grown for fifteen quarters since pulling out of recession mid-2009

-10

-8

-6

-4

-2

0

2

4

6

8

10

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

Quarter-over-quarter annualized % change

Year-over-year % change

Source: Bureau of Economics Analysis, RBC Economics Research

U.S real GDP growthQuarter-over-quarter annualized % change


However, the pace of growth has been historically modest and has left the unemployment rate high relative to the pre-recession levels and thus the economy vulnerable to a negative shock

3

4

5

6

7

8

9

10

11

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: Bureau of Labor Statistics, RBC Economics Research

%

Unemployment rate: U.S.


Potential negative shocks include a worsening in the European sovereign debt crisis and/or the U.S. failing to address its fiscal imbalances

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

As a % of GDP

Net debt by country: 1993-2012

Source: OECD, RBC Economics Research

Greece

Italy

OECD avg.

U.S.

Canada


For growth to be sustained, it will also be necessary to see continued modest strengthening in employment growth going forward

-1000

-800

-600

-400

-200

0

200

400

J an-07 J ul-07 J an-08 J ul-08 J an-09 J ul-09 J an-10 J ul-10 J an-11 J ul-11 J an-12 J ul-12 J an-13

*Excludes the impact of the Verizon strike in August 2011


Private sector employment growth*: U.S. Change from previous month (Thous.)


10

Assuming policymakers in both the Eurozone and the U.S. address pressing fiscal issues, highly stimulative monetary conditions are expected to sustain U.S. growth in 2013 and 2014

-10

-8

-6

-4

-2

0

2

4

6

8

10

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Forecasted Values:

Source: Bureau of Economic Analysis, RBC Economics Research

U.S. real GDPQuarter-over-quarter annualized % change

Annual Growth Rates

2012f

2.2

2011

1.8

2010

2.4

2014f

2.9Real GDP2013f

2.2


However, this represents a very ‘sub-par’ recovery with activity restrained by the fallout from the last recession in the form of high household and government debt levels and impaired financial markets

90

95

100

105

110

115

120

125

130

t-6 t-4 t-2 peak t+2 t+4 t+6 t+8 t+10 t+12 t+14 t+16 t+18 t+20 t+22 t+24 t+26 t+28

Q3-1981Q2-1990Q2-2001Q4-2007

Indexed to 100 at recession GDP peak

U.S. Real GDP: Indexed to Recession GDP Peaks


Forecast


The projected pace of GDP growth will put only modest downward pressure on the unemployment rate

3

4

5

6

7

8

9

10

11

2000 2002 2004 2006 2008 2010 2012 2014


%

Unemployment rate forecast: U.S.

Forecast


Slack in labour markets will keep inflation quiescent despite commodity prices remaining historically high and aggressive central bank easing

-2

-1

1

2

3

4

5

6

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Headline Core


Inflation: U.S.

Forecast



High unemployment and low inflation will result in the Fed keeping policy accommodative with hikes to Fed funds not expected until 2015

1

2

3

4

5

6

7

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: Federal Reserve Board, RBC Economics Research

Forecast

%Fed Funds Rate


Canadian Economic Outlook:

Strong Demand for Natural Resources a Benefit For Canada Though Growth is Still

Largely Dependant on Sustained U.S. Recovery


The recovery in Canada has generally been stronger than in the U.S. though growth has been hit by bouts of transitory weakness such as in the third and fourth quarter of last year

-8

-6

-4

-2

0

2

4

6

8

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

quarter-over-quarter, annualized rate

year-over-year

Source: Statistics Canada, RBC Economics Research

Canada's real GDP % change


Source: Haver Analytics, RBC Capital Markets

Canada’s bounce post-crisis is impressive, not just against the U.S.

8.4

4.2

1.2

-2.1

-2.1

-2.6

13.3

5.5

-2.8

-2.1

2.5

-1.7

-4.0 -2.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0

Australia

Canada

UK

Euro-area

US

Japan

GDP change from pre-crisis peak *

Employment change from pre-crisis peak *

* % chg from 2007Q4to most recent qtr end


The Canadian economy has benefited from strong, albeit slowing, demand from emerging markets, particularly in Asia, for various natural resources…

7.7

2.7

3.9 4.0

7.8

4.0

0.9

3.9

3.2

5.7

3.03.4

4.0 4.0

9.3

3.4

8.3

3.4

6.2

8.2

1

2

3

4

5

6

7

8

9

10

China India Brazil Mexico World

2011 2012 2013f 2014f

% change in real GDPMajor emerging economics

Source: International Monetary Fund, RBC Emerging Markets Research, RBC Economics Research


…which is putting upward pressure on oil, base metal and grain prices though forestry prices have benefited less

100

200

300

400

500

600

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013*

Crude Oil

Potash

Wheat

Zinc

Pulp

Lumber

Indexed, 1995 = 100

Commodity prices

* year to date through March

Source: Bloomberg, RBC Capital Markets, RBC Economics Research


Our expectation is that this strength for most commodity prices, such as for oil, will generally be maintained through the forecast though some, like for natural gas, will be weighed down by supply factors

0

20

40

60

80

100

120

140

160

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

0

2

4

6

8

10

12

14

16

Source: Wall Street J ournal, Bloomberg, RBC Economics Research

Forecast

Natural Gas (RHS)

Oil (LHS)

$/ mmbtuEnergy PricesUS$/ barrel


High commodity prices and low interest rates are expected to result in business investment being a mainstay of Canadian growth this year and next

-25

-20

-15

-10

-5

5

10

15

20

25

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Non-residential investment in Canada

Forecast

Annual Growth Rates

Non-res (QoQ)



GDP (YoY)

2012

6.2

2011

10.4

2010

14.5

2014f

7.3

2013f

4.5


The investment story hangs on natural resources

Source: Statistics Canada, RBC Capital Markets

Capital Expenditures ($Cbn)

5.7

5.9

5.5

10.2

9.7

10.2

9.7

11.6

12.4

20.4

19.8

29.1

39.7

81.4

5.6

5.8

6.0

9.5

9.8

9.9

10.9

12.0

13.9

20.9

22.4

31.3

40.5

79.2

0 10 20 30 40 50 60 70 80 90

Agriculture, Forestry, Fishing, Hunting

Construction

Wholesale Trade

Educational Services

Health Care and Social Assistance

Information and Cultural Industries

Retail Trade

Real Estate and Rental and Leasing

Finance and Insurance

Manufacturing

Transportation and Warehousing

Utilities

Public Administration

Mining, Oil and Gas extraction

2013 Planned

2012


High levels of Canadian household debt as a share of income are a concern…

80

100

120

140

160

180

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Source: Statistics Canada, Federal Reserve Board, Bureau of Economic Analysis, RBC Economics Research

*Credit market debt includes mortgages and consumer loans only

Canada

Credit market debt*-to-personal disposable income%


As they surpass other countries on a relative basis…

Household debt-to-income ratios

20

40

60

80

100

120

140

160

180

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Australia U.K. Canada U.S.

Source: Statistics Canada, Federal Reserve Board, Bureau of Economic Analysis, Australian Bureau of Statistics, Office for National Statistics, RBC Economics Research


…though with servicing costs still manageable…

6

7

8

9

10

11

12

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

Mortgage & nonmortgage interest payments as a % of PDIHousehold debt service ratio: Canada



…these balance sheet constraints will limit, though not prevent, continued growth in consumer spending

-6

-4

-2

2

4

6

8

10

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

PCE (QoQ)

Quarter-over-quarter % change, annualizedConsumer expenditures in Canada


Annual Growth Rates

2012

1.9

2011

2.4

2010

3.5

2013f

2.2

Forecast

GDP (YoY)

2014f

2.4


High debt levels are expected to keep demand for new housing units subdued with the prospects of higher rates and announced mortgage rules changes having advanced some activity to 2012 at the expense of this year and next

175182

215

0

50

100

150

200

250

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Source: Canada Mortgage and Housing Corporation, RBC Economics Research

SAAR, Thousands of units

Housing starts: Canada

Forecast


All major housing price indices showing moderation

Source: RBC Capital Markets, Haver Analytics

-15

-10

-5

0

5

10

15

20

25

00 01 02 03 04 05 06 07 08 09 10 11 12 13

CREA - unweighted MLS prices national Teranet/National Bank - national composite 11CREA - MLS HPI CREA - weighted (by provincial share) MLS prices national

% y/y

CREA raw (Mar '13): +2.5% y/yTeranet (Feb '13): +2.7% y/yMLS HPI (Mar '13): +2.2% y/yCREA weighted (Mar '13): +2.5% y/y


Strong business investment, rising U.S. demand, modest gains in consumer spending, and accommodative Bank of Canada policy are expected to help sustain growth in Canada through 2014 offsetting declining residential investment

-10

-8

-6

-4

-2

0

2

4

6

8

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: Statistics Canada, RBC Economics Research Forecasts

Canada's real GDP quarter-over-quarter % change, annualized rate

Forecasted values:

Annual Growth Rates

2012

1.8Real GDP

2013f

1.8

2014f

2.92010

3.2

2011

2.6


A handover from consumer to net trade, gov’t spending to investment?

Source: Bank of Canada, RBC Capital Markets

Forecasted contributions to GDP Growth: Canada

Percentage points

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Avg (2010-to-2012) 2012H2 2013 2014

Household Consumption GovernmentNet Exports HousingBusiness Investment InventoriesReal GDP (%, rhs)

%


The composition of growth in the U.S. should help moving forward

70

80

90

100

110

120

130

140

150

1998 2000 2002 2004 2006 2008 2010 2012 2014

BoC U.S. Activity Index

Canada Exports

U.S. GDP

Index 2009=100

Canadian exports and U.S. activity

Source: Statistics Canada, Bureau of Economics Analysis, Bank of Canada, RBC Economics Research Forecasts

Forecast


The outlook for growth will put further downward pressure on unemployment rate

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Unemployment rate: Canada


%

Inflation-safe range

ForecastAnnual Rates

2012

7.2

2011

7.4

2014f

6.7Unemployment rate

2013f

7.0


Though the unemployment rate has moved lower, there remains sufficient slack in the economy to keep core inflation below target near term despite high commodity prices

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14


Forecast

BoC inflation target

(2.0%)

Core inflation: Canada% change, year-over-year

Annual Rate

2012

1.7

2011

1.7

2014f

1.9Core inflation

2013f

1.5


To sustain growth, the Bank of Canada is expected to remain on the sidelines until the middle of next year though the hikes will be moderate, reflecting the modest rebound in growth

0

1

2

3

4

5

6

7

02 03 04 05 06 07 08 09 10 11 12 13 14

Source: Bank of Canada, RBC Economics Research

Bank of Canada overnight rate%

Forecast


The Canadian dollar to remain strong though slightly below parity reflecting historically high commodity prices and the Bank of Canada tightening in advance of the Fed

0.60

0.70

0.80

0.90

1.00

1.10

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Forecast

Source: Bank of Canada, RBC Economics Research Forecasts

Parity

Canadian dollar forecastUS$/ C$

End of period rates

2013f

0.962012

1.00US$/C$

2014f

0.98

Global Technical Outlook – Spring 2013Risk Dominoes and Reverberations: A Changing Landscape

George Davis, CMTManaging Director and Chief Technical AnalystRBC Dominion Securities Inc. (416) [email protected]

May, 2013

This report was priced between March 11-15 and April 29-30, 2013 unless otherwise stated.

Please see page 26 for Required Disclosures.

FIC TECHNICAL STRATEGY I RESEARCH

Research Publications

The following research reports comprise our roster of FIC technical publications that are available to clients:

Canadian Dollar Morning Comment (daily, FX)

The Daily Grid (daily, fixed income)

Lines in the Sand (weekly, FX & fixed income)

Payroll Pivot Points (monthly, FX & fixed income)

Special Reports - FX (ad hoc, FX)

Special Reports - Fixed Income (ad hoc, fixed income)

Global Technical Outlook (semi-annual, intermarket analysis, FX & fixed income)

Please contact your RBC Capital Markets representative if you would like to be added to our distribution lists.

Intermarket Focus: A Reassessment of Risk

SECTION I

An analysis of some of our intermarket and fusion metrics shows early signs of a breakdown in some of the traditional “risk on/risk off” relationships.

The behaviour of the USD and equities are a major factor and catalyst in the breakdown of some of these relationships.

Suggests that the market may be moving toward a new valuation dynamic where traditional economic responses to data are more dominant.

Removal of “tail risk” in the Eurozone and various QE programs are having the greatest impact on asset classes.

5151

S&P 500 Index Goes “All In” For Risk ….. The S&P 500 Index is in a powerful

uptrend, as defined by the ascending channel pattern that has been in place since 2009.

We note that the 40-week (200-day) moving average has contained pullbacks since early 2012.

In addition, the Index has traded above the Ichimoku Cloud since that time.

Prices are now poised to test a key double top that has formed against the secular high at 1576.

A weekly close above this level would add to bullish price momentum, exposing the 1600 threshold ahead of the channel top at 1673.

Our colleagues in the equity Trend & Cycle group are concerned about a correction materializing in Q2 2013.

Indeed, the overbought nature of the weekly studies corroborates this possibility, with a return below initial support at 1536 opening up the trendline at 1459 in this regard.

However, we stress that the channel base at 1326 will have to be pierced in order to trigger a bearish long-term trend reversal.

Sharp rally in the S&P 500 Index underscores positive risk sentiment

Source: Bloomberg

Close above double top @ 1576 would add to bullish

sentiment, highlight channel top @ 1673

Weekly studies move to overbought levels

Ascending channel delineates uptrend and positive risk sentiment; key support against

channel base @ 1326

5252

….. As Global Stimulus Measures Underpin the Market Stimulus measures have been the prime

catalyst in underpinning risk sentiment during these challenging and uncertain times.

In the chart on the left, we illustrate how the various stimulus measures introduced by the Fed, ECB and more recently the BOJ have served to place a ”floor” under stocks.

We have included a chart depicting the ratio of the Fed balance sheet to that of the ECB as a proxy to depict the various stimulus programs that each central bank has undertaken since 2008.

On some occasions, such as QE1, the market has rallied in response to the introduction of a stimulus program.

However, since that first policy initiative, the market has usually rallied in anticipation of new stimulus measures being introduced to quell a decline in the market resulting from weakening growth metrics.

This begs the question as to how long such a policy response/conditioning mechanism can persist – and what would happen if the central bank liquidity “punch bowl” were suddenly taken away.

Investors have been “conditioned” to expect a stimulus response to declining markets

Source: Bloomberg

QE1 QE2 QE3 and

Japan

LTRO 1 & 2

5353

Yet Something is Amiss: Risk Relationships are Breaking Down To us, the most interesting byproduct

of recent price action has been the breakdown in some of the more traditional “risk on/risk off” intermarket relationships that have persisted since the US credit crisis began in 2007-2008.

The first chart to the left in this regard is an overlay chart of the DXY versus the S&P 500 Index.

After displaying an increasing negative correlation from 2008 through 2011, we note that the correlation has recently reached its lowest level in 2 years, moving from -0.86 to -0.23.

As an offshoot of this development, both instruments have begun to trend upward in unison since the end of January.

Hence, “risk on” via rising equities does not necessarily imply a weaker USD in the current environment.

On the flip side, USD strength no longer reflects the “flight to liquidity” response normally associated with periods of “risk off” behaviour (i.e. the USD may be losing its safe haven status).

Inverse relationship between S&P 500 Index & DXY erodes; USD loses safe haven status

Source: Bloomberg

Negative correlation between SPX and DXY moves to its lowest level in 2

years

SPX and DXY both began to trend upward in late

January

5454

Stocks and US 10-Year Yields Start to Move Together Stocks and US 10-year yields have

been on a divergent trend path since 2010.

However, note the shift in late 2012 – when stocks and yields began to rise together.

This hints at a breakdown in one of the traditional “risk on/risk off” relationships.

Notably, yields are no longer staying depressed due to QE.

Rather, they appear to be trading off of more traditional macroeconomic responses: i.e. strong economic data leads to higher yields and vice-versa.

US 10-year yields are becoming more responsive to economic data

Source: Bloomberg

Stocks and yields started moving higher together in H2

2012, reversing a prior divergent trend

5656

The Current Problem: Will This be a Repeat of 2011 & 2012? 2010, 2011 and 2012 all began with a

firmer trend in the US economy – only to be followed by a sharp deterioration in growth.

In the chart to the left, note how the RBC US Economic Scorecard (blue) peaked in Q1 2011 and Q1 2012, followed by sharp moves lower.

This caused downward pressure on 10-year yields as the market anticipated new potential QE programs.

The market is currently concerned that we are in the same predicament!

The market is worried that economic growth is faltering again

Source: Bloomberg

Foreign Exchange Overview

SECTION II

We are turning more bullish on the USD relative to our Fall 2012 update.

The USD has posted bullish trend reversals against many G10 currencies, favouring additional gains for the greenback.

Valuation metrics and study divergences have introduced downside risks for the EUR crosses.

6060

CAD Weakness in 2013 Independent of Oil Spread The spread between WTI and

Western Canadian Select widened out significantly between September and December 2012.

This was the main catalyst behind the weakening in CAD – which began just as the spread began to widen.

However, we note that the spread peaked above 40 in January and has moved continuously lower since then – breaking below 20 in the process.

Regardless, USD/CAD has diverged and traded higher despite the tightening in the spread.

Thus, the breakdown in the spread suggests that the CAD is weakening independently of the oil dynamics (other factors are now at play).

Oil spread no longer a negative factor for CAD

Source: Bloomberg

USD/CAD continued to rally in early 2013 despite a sharp

reversal lower in WTI-Western Canadian Select spread

Divergence suggests other factors caused

CAD to weaken

61

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12

World equities Crude oil Base metals 2yr CA-US swap spreads

61

CAD Correlation With Stocks Makes a Hasty Reversal The negative correlation between

USD/CAD and equities has been one of our preferred intermarket metrics to assess the risk backdrop.

We note that this relationship exploded on the scene in 2008 after the onset of the credit crisis gave way to the “risk on/risk off” dynamic that has been driving price action in the asset classes ever since.

However, USD/CAD has not been moving to new lows of late despite global equities reaching cyclical highs.

The breakdown in this relationship is yet another indication that the risk dynamic is changing.

2-year CA-US swap spreads are currently the most significant variable for USD/CAD, reflecting the recent shift in the interest rate dynamic in Canada.

It is interesting to note that crude oil has largely had the least significant negative correlation with USD/CAD – and this has been the case for most of the past year.

Equities are no longer the most relevant correlational variable for USD/CAD

Source: Bloomberg, RBC Capital Markets

Correlations are based on 1-year weekly rolling changes

Equities the main proxy for the “risk on/risk off” trade since

2008

Significant shift in correlations suggests an evolution/change in the underlying risk dynamic

6262

USD/CAD Tests Key Triangle Top Amidst Consolidation Phase

Key Support & Resistance Levels:

Support: 0.9992 0.9765 0.9576

Resistance: 1.0278 1.0447 1.0658


USD/CAD remains within a broad consolidation that has been in place since 2010-2011, as illustrated by the triangle pattern.

However, we note that prices are now probing the triangle top at 1.0278 after failing to reach the base of the triangle in September 2012.

A weekly close above 1.0278 would resolve the triangle pattern to the topside and end the multi-year consolidation phase after clearing the Ichimoku Cloud pattern.

The resulting bullish trend reversal would establish 1.0447 and 1.0658 as the next topside targets in this regard.

Although a weekly close below initial support at 0.9992 would nullify the topside risks that are present and cement a continuation of the consolidation, a break below the triangle base at 0.9576 will be required in order to resolve the pattern to the downside and set a new bearish phase in motion.

Our bias is to use pullbacks to support at 0.9992 and 0.9765 as a buying opportunity, with 1.0447 serving as a target.

Implement 0.9576 as a stop loss for this view.

Close above key triangle top @ 1.0278 would suggest that a long

base has formed; target 1.0447 and 1.0658 next

Must pierce triangle base @ 0.9576 in order to commence a new bearish

phase

Studies approach overbought valuation levels

63

USD/CAD – Hedging Strategies for H1 2013

The “risk on/risk off” dynamic is eroding somewhat, giving way to a more traditional response to economic data.

Recent slowdown in Canadian and US economic growth is a headwind for CAD gains Prefer to fade selloffs in USD/CAD in the current environment

Key Themes:

Moves to 0.9992, 0.9765 and 0.9576 are viewed as a buying opportunity Reduce exposure on a weekly close above 1.0278 (stop loss level) Monitor correlations to see if “risk on/risk off” dynamic returns to the forefront

Buyers of USD/CAD:

Use rallies to resistance at 1.0278, 1.0447 and 1.0658 as a selling opportunity Reduce exposure on a break below support at 0.9765 (stop loss level) Keep a close eye on the triangle top at 1.0278 for hints relating to directional bias

Sellers of USD/CAD:

6868

Crude Oil Holds Above Key Support Trendline at 85.90

Crude oil prices have been consolidating for the past two years, as evidenced by the formation of a symmetrical triangle pattern.

We note that the most recent selloff in crude stalled right against the base of the triangle at 85.90 (also 61.8% Fibonacci retracement of the 2009-2011 rally) – thereby sustaining the consolidation phase.

However, when viewed as a continuation pattern, the triangle does harbor bearish implications.

Suggests that resistance at 97.15 and 104.87 will attract selling interest.

A weekly close below 85.90 would affirm the downside risks, exposing a key double bottom at 81.19 next.

A close below this level would be an extremely bearish development as it would signal an increase in downside price momentum.

The resulting breakout would shift the focus down to 76.76 (76.4% retracement of the 2009-2011 rally), followed by 70.61.

Place a stop loss above 110.18 for this view.


Support: 85.90 81.19 70.61

Resistance: 97.15 104.87 110.18


Resistance located @ 97.15 and 104.87

61.8% Fibonacci retracement flush with triangle base

Neutral valuations

Watch triangle support @ 85.90

6969

Natural Gas Price Correction Continues

Natural gas prices have been undergoing a correction for the past year, rebounding to 4.50 recently from a low of 2.96 last April.

We note that prices are currently straddling 38.2% Fibonacci retracement of the 2011-2012 decline at 4.42 as an ascending channel pattern defines the current uptrend.

Needless to say, a weekly close above the 4.42/4.50 region is required in order to sustain the current advance.

This would then shift the focus up to secondary resistance levels that are denoted by 50% retracement at 4.86 and 61.8% retracement at 5.31.

The ascending channel top is located between these two levels at 4.96.

Support is located at 3.93 and 3.82 (the 40-week/200-day moving average), followed by the channel base at 3.31.

A weekly close below 3.31 is required in order to nullify the current uptrend via a bearish trend reversal.


Support: 3.93 3.31 2.96

Resistance: 4.50 4.86 5.31


Close above 4.41/4.50 region would expose 50% and 61.8% retracement levels @ 4.86 and

5.31 next

38.2% Fibonacci retracement @ 4.42 has contained rallies so far

Neutral valuations

Pivot for corrective uptrend @ 3.31

canadian and u.s. economic outlook: navigating through challenging times

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