USDCAD and US 500 Index

The markets remained in exuberant mood as the holidays approach with a break of the 3200.00 resistance level on the US500 index and the melt-up in stocks is coming up on its one year anniversary next week. The rally on the day after Christmas 2018 set the tone for the entire year, with negative headlines and economic data being opportunities for dip buyers to step into the market and push prices higher. A break above the previous high of 2940.00 needed almost six months of consolidation around that level to finally achieve a second leg higher eight weeks ago. Since then the market has focussed on the positive news surrounding the US-China trade deal and this has led to a FOMO trade into year end, with Santa Claus arriving early for investors. Low return yields and the quantity of cash on the sidelines this year have meant that investors have flocked to stocks despite worries of a pending global recession and an inverted yield curve. Lower Chinese growth forecasts, lower growth associated with Brexit and the impact of trade tariffs on the US remain causes for concern to name but a few. The success story in the US has been the bullish effect of the consumer with strong sales maintaining the economy despite stormy waters. All time low unemployment has produced a healthy cushion for the US economy one which can weather storm like the suspension of the Boeing 737 Max production, which was announced earlier this week. Sticking with more immediate events, the UK is expected to hold a vote on the Prime Ministers Brexit Bill today. The Prime Ministers majority may make this process easier that previous by both him and his predecessor. If the Bill is passed today, the government can move ahead with turning it into law before the end of January 2020. This would facilitate a Brexit from the EU by the end of 2020, trade deal or not. The GBPUSD pair is trading around 1.3000 after rejecting the 1.3500 area this day last week following the conservative’s landslide win in the parliamentary election. The Bank of England is also set to appoint a new governor to replace the departing Mark Carney. The Financial Times has reported that Andrew Bailey will be the next governor with an official announcement to come as early as today. Back in the US, the House of Representatives voted in favour of the new NAFTA or USMCA trade deal yesterday. The deal will now be sent to the Senate for approval. This was a key driving factor in the move higher in risk assets yesterday. Gold continues to trade in a tight range but a break of trend line resistance around 1482.00 may point to a move higher developing.

The UK is expected to release its Final GDP reading which is forecast to remain at 0.3% this morning. In the afternoon, Canadian Retail Sales data is expected to rise to 0.5% from -0.1%. US Final GDP is expected to remain at 2.1% today. Also in the afternoon, the House of Commons is to vote on the Brexit deal.

USDCAD

The USDCAD pair is now trading around 1.3136 this morning after breaking through and then testing the 1.3100 level earlier this week. A break back higher may target the 1.3200 area which formed resistance a week ago. The 1.3270 area has the potential to be used as resistance and is followed by the 1.3300 level and this month’s high 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 1.3100 level in the short term, as this week’s low, with further support around the 1.3116 area. The 1.3150 area may be used as resistance if support at 1.3116 holds in the short term. A loss of this area may open the way to potential lower levels of support at 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. Traders may potentially lean on this area followed by the 1.2900 level the round number is broken.

US 500 Index

The US 500 Index has broken out from the 3150.00 level this week, reaching a high of 3208.00 yesterday. The Index pulled back to test the support area at 3188.00 area on Tuesday and price then found buyers and moved back up to currently sit around 3204.34. If buyers continue to try to push price higher, resistance at 3215.00 may be used to try to continue the move up to test the 3230.00 area and possibly breakout higher to engage potential resistance at 3249.00 or 3250.00. Above these levels the 3280.00 level comes into play and may be used as resistance ahead of 3300.00.

Resistance for the Index may form at the high of 3208.00 in the short term level. A failure to find support after resistance is tested, may lead to a test on the 3200.00 round number followed by the higher lows at 3188.00. Below these levels the 3160.00 area and the 3150.00 level might be followed as potential support by the 3115.90 area as the higher low from earlier this month. A break down from this point might allow a test on the 3100.00 round number level as support. The 3069.00 area was used as support as the month began and a loss of this level may open the way to 3028.00.

Phillip Konchar

Core Spreads

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