USDCAD and US 500 Index

Markets found more reason to stay in risk on mode yesterday as Chinese sources continued to confirm reports that they were holding low level talks with the US. This added fresh hope to this leg of the recovery that started on Wednesday. The reports did say that the Chinese want the US to treat them as equals in any negotiations and provide a level playing field for trade conditions. Tensions that emerged yesterday between the two countries seems to have been ignored for now as the market is choosing to focus on the positive aspects of the relationship. However the arrests of Hong Kong protesters may add further strain to the dynamic. The Chinese Daily newspaper has cited the fresh troops of the Hong Kong garrison as a bulkhead against any worsening of the unrest in the region, saying that, "If the already ugly situation worsens, with the violence and unrest threatening to spiral out of control under the orchestration of secessionist-minded troublemakers, the armed forces stationed in the SAR will have no reason to sit on their hands,". The market has also ignored the ECB Members’ comments this week about their reluctance to roll out fresh QE until ECB Member Knot made his comment yesterday afternoon, which led to a sharp decline in equity markets and a spike in EURUSD from 1.1061 to 1.1092. Members such as Weidmann, de Guindos and Nowotny have been saying that there is no need to roll out a large QE program to stimulate the economy and that the ECB should be ready to disappoint markets. They added that the ECB is data dependant, not market dependant, and this rhetoric may play into the market dynamic over the next two weeks as we approach the next ECB Monetary Policy meeting. This is with a backdrop of falling bond yields. Markets may remain choppy today as the end of the months flows are set to see some rebalancing in portfolios. Gold has fallen back to consolidate around the 1525.00 support area while stocks have advanced higher with the German 30 threatening to push above the resistance area at 11870.00. GBPUSD fell to a low around 1.2175 yesterday and is now trading at 1.2185.

This morning we are waiting on the release of Eurozone CPI Flash Estimate data which is expected to match the revised 1.0% previous release. This was revised down from 1.1%. In the afternoon, Canadian GDP is expected to slip to 0.1% from a previous 0.2%. US Personal Spending is expected to rise to 0.5% from 0.3%. US Core PCE Price Index is expected to rise to 0.3% from 0.2%. Chicago PMI is also forecast to show an improvement of 48.1 from 44.4.

USDCAD

The USDCAD Pair is trading at the 1.3300 level as it consolidates its position by creating lower highs and higher lows. The pair is in a range between 1.3343 and 1.3224. The price fell below its supporting trend line at the start of the week and now appears to be using the line as resistance. A fall under the 1.3244 level may push price down to this week’s low and the range bottom. Below this the 1.3200 level may provide support. The 1.3177 level has been providing support but a break under this level may send price towards a test of 1.3117 or the low at 1.3105 and 1.3100.

Resistance or the pair at the top of the current range may be found around 1.3345, with a break above this area potentially challenging the trend line at 1.3363. Beyond this line the 1.3381 former support area may become resistive ahead of the 1.3400 round number. The lower high might also provide resistance at 1.3432 but a push past this level might open up the 1.3500 area to a retest followed by the May high at 1.3566.

US500 Index

The US 500 Index has once again recovered from its sub-2820.00 buy area and reached its resistance zone above 2925.00 following fresh hope of progress in the US-China trade dispute. The price is consolidating in this large range with the creation of lower highs and higher lows. The selloffs have typically been one or two day affairs with the recovery taking three to five days. A breakout above the 2945.00/2950.00 area may push price to test 2970.00 followed by the 3000.00 level. A break beyond this point might open the path to a retest on the high at 3028.00, with 3050.00 beyond.

A break back under 2900.00 may find support at the higher low of 2852.00/2850.00. A loss of this area might lead to a break of 2820.00/2817.00 followed by 2800.00. This would create a third lower low ahead of the August low of 2777.00 and potentially set up a test on that level with buyers hoping to possibly create a double bottom there. However a failure to defend 2777.00 might result in a drop to the 2750.00 level or the June low at 2729.00. Under this area the 2700.00 round number level may be used as support.

Phillip Konchar

Core Spreads

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