USDCAD and US 500 Index

The Asian session has produced a risk on move in markets after a decline in the US session began yesterday. It would appear that markets are to some extent treading water here ahead of the FED Chair’s speech this afternoon at Jackson Hole. As mentioned earlier this week the market is expecting the speech to contain strong indication of a September rate cut of 25bps and a message on further accommodative policy and dovish language. But there is scope for disappointment here also, as expectations may not mirror reality. Bank of England Governor Carney is also due to speak this evening at the symposium today as the Brexit date approaches without an agreement on an exit deal. The UK Prime Minister has been jetting around Europe to hold discussions with EU Leaders in an effort to break the deadlock on a Brexit deal. The Irish Backstop remains a stumbling block for the UK but the EU sees the Backstop as an insurance policy against a hard border on the island of Ireland and protection of the Good Friday Agreement that has brought an end to armed conflict in Northern Ireland. German Chancellor Merkel made comments towards resolving the issue and coming up with a joint solution to the border/backstop problem before the October deadline. GBPUSD rallied hard on the comments, with the pair moving from 1.2121 to currently trade around 1.2229, hitting a high of 1.2272 along the way. The PBOC set the lowest reference rate for the Yuan in 11 years today as it has recently had to accommodate the currency to allow room for easing policy against the fallout from the trade war with the US. Gold is still holding in the vicinity of 1500.00, currently trading around 1494.00. USDJPY has drifted up to 106.600 in a risk on shift for markets.

There are no European data releases this morning. Canadian Retail Sales are expected to be released this afternoon. US FED Chair Powell is to speak from Jackson Hole this afternoon, while BOE Governor Carney will speak at the event this evening.

USDCAD

The pair has continued to trade around the 1.3300 area in August with price currently positioned around 1.3324. Price action has formed against the bottom of the rising resistance trend line around 1.3355, having formed its own support trend line around 1.3270. A loss of this line may open the way towards the 1.3244 level which has been used as support and resistance in the past on the chart. A break under this level may target a test on 1.3200 followed by 1.3118/1.3100. The July lows around 1.3016 may offer support ahead of the 1.3000.

A break above the August high at 1.3345 and the resistance trend line at 1.3355 may push price above the 1.3381 area ahead of 1.3400. Beyond this the lower high at 1.3432 from June trading might be used as resistance before an attempt on higher levels. The 1.3500 has been resistive to breakouts with the pair failing to close above the level in April and much of May. By the end of May repeated attacks on the level allowed the pair to produce two daily closes above the 1.3500 level with a high extending to 1.3566 before sellers forced the pair lower.

US 500 Index

The US 500 Index has been pushing higher in the build up to Jackson Hole and created a high at 2939.20 yesterday. The moves were supported by concessions on trade tariffs between the US and China earlier this month and a FED rate cut. Resistance at 2945.00 may prove to be too much for the market if the FED disappoints later today. However a break above this area may open the way towards a test on 2970.00. Beyond this the 3000.00 level looms as an area of resistance and support from July. The high at 3028.00 may be retested if the market feels the FED is full-square behind it.

The creation of rising support in recent weeks has produced a break back above the 2900.00 area with a resistance around 2945.00. A fall back under the 2900.00/2892.00 area may throw doubt on the ability of the index to break back higher in the very short term. However as can be seen from the chart, volatility has increased this month, with the index producing wild swings particularly in the first two weeks. The higher low around 2817.50, may be retested if the 2850.00/2840.00 is lost. A break under 2800.00 and the low at 2777.00 may create a move down to test important support around 2729.00/2722.00 as the lows from June and March respectively.

Phillip Konchar

Core Spreads

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