USDCAD and US 500 Index

In a day that started with central banks making policy decisions, the focus quickly shifted onto trade and politics yesterday. The ECB left rates unchanged at 0.00% and new President Christine Lagarde held here first press conference in which she began by outlining her style and noted that comparisons between her and her predecessor may bear little insight into future policy, "Don't over-interpret, don't second guess... I'm going to be myself and therefore different". She said that there were now some initial signs of stabilization in growth slowdown and that highly accommodative policy still needed. She also said that incoming data point to continued muted inflation pressures and that the ECB stands ready to adjust all instruments as needed. She noted that risks remain tilted to the downside but have become somewhat less pronounced and headline inflation prices, largely on oil, are expected to rise in coming months. The Euro rallied on the comments and this led the EURUSD pair higher from 1.1130 to 1.1153 before it moved lower to 1.1102 in the US session. There followed some chatter that the US and China had reached a deal in principle and a tweet tfrom US President Trump that said, “Getting VERY close to a BIG DEAL with China. They want it, and so do we!” sent US stocks higher, with the US500 at 3137.00 before the tweet and at 3176.00 an hour later hitting a high for the session. The story leaked out that the US offered to cut Chinese tariffs by up to 50% on $360B of imports but a later report suggested that this offer had been made a week ago. Stocks then began a selloff to create a higher low 3149.25. The feeling at that point in the market was that the US had compromised but China has not publically replied the offer in over a week. The stumbling block for China seems to centre on the hard target of $50B of agricultural purchases. There is an expectation in the market that a deal will be signed today between U.S. trade representative Robert Lighthizer and Chinese Ambassador Cui Tiankai. The market is pleased that the Sunday tariffs have been delayed at the least.

The UK Election delivered a major win for the Conservative party. The party passed the 326 majority earlier this morning and is on track to secure a majority that will allow it to govern without needing support from other parties. The need to rely on DUP support in the last parliament, ham strung the government from getting a brexit deal ratified. Incidentally the DUP have lost two seats along major losses for labour. The exit poll data released after the polling stations closed, signalled that the Conservatives and SNP would gain large numbers of votes at the expense of Labour and the Liberal Democrats. The victory for the Conservatives signals a clear intent to get Brexit done and this should provide the government with a streamlined path to exit the EU. The win for the Scottish National Party however suggests that there may be a strong attempt to keep Scotland in the EU and a second independence referendum to achieve this aim.

The light calendar today may give traders a chance to catch their breath after a hectic day yesterday. UK Consumer Inflation Expectations are expected to be released this morning. In the afternoon, US Retail Sales data is expected to improve to 0.5% from 0.3%.

USDCAD

The USDCAD pair is now trading around 1.3166 this morning after breaking through the support at the 1.3200 level last week. The lower high at 1.3270 formed resistance and was tested last friday. A break back higher may target the 1.3270 area followed by the high of this week above 1.3300, at 1.3321. Beyond this the 1.3350/1.3345 area has been used as resistance through the months of August to October and this has created a visual area of price action. The single instance of a break higher past that line during that time found resistance at 1.3382 ahead of the 1.3400 level. A break above these levels might seek to test 1.3452, 1.3500 or the high at 1.3566.

Support for the pair has formed around the 1.3158 level in the short term, as weeks’s low, with further support used to form today’s overnight low around the 1.3150 area. A loss of the 1.3150 area may lead to a test of the February support level at 1.3116. A loss of this area may open the way to potential lower levels of support at 1.3100 or 1.3043 as the October low. Below this level the 1.3016 area has been used as a low with potential support at the 1.3000 round number.

US 500 Index

The US 500 Index has pushed above the 3150.00 level this week, reaching a high of 3183.70 overnight. The Index pulled back to test the support area at 3115.60 on Tuesday and price then found buyers and moved back up to currently sit around 3179.00 after the US-China trade deal agreement in principle announcement and the UK Election win for the Conservative party. If buyers continue to try to push price higher, resistance at 3185.00 may be used. Above this level the 3190.00 level comes into play and may be used as resistance ahead of 3200.00 and 3250.00.

A failure to find support at 3150.00, may lead to a test on the 3115.00 or the 3100.00 round number followed by the higher lows at 3092.00. Below these levels the 3069.60/3066.78 area and the 3050.00 level would be followed as potential support by the 3028.20 area as the former all time high level from July. A break down from this point might allow a test on the 3000.00 round number level as support. The 2977.00 area was used as support below 3000.00 in recent months and this level may arise again.

Phillip Konchar

Core Spreads

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