USDCAD and US 500 Index

The trading action yesterday created some volatile moves albeit at a reduced range compared to previous months. The ECB left rates unchanged at 0.00% and made no changes to its monetary policies. The statement said that the PEPP will continue to run at a significantly higher pace. The statement also said that the ECB expects rates to remain at present levels or lower until inflation outlook has robustly converged to a level sufficiently close to, but below, 2% within projection horizon. In the press conference, ECB President Lagarde said that underlying price pressures remain subdued and headline inflation forecasts remain below target over the forecast horizon. However, projections signal a gradual increase in core inflation, with headline inflation likely to increase in the coming months. As such the ECB raised its inflation forecast for 2021 from 1.5% to 1.9% and for 2022 from 1.2% to 1.5%, with 2023 remaining at 1.4%. It also raised its GDP forecasts for 2021 from 4.0% to 4.6% and for 2022 from 4.1% to 4.7%. Also on the docket yesterday was the US Initial Jobless claims data which increased to 376K from 370K. The most important data release yesterday was US CPI which increased to 5.0% from 4.7% y/y and to 0.6% from 0.4% m/m. Core CPI increased to 0.7% from 0.5% m/m. This yearly CPI increase was the largest since 2008 and built on last month’s increase. However, the market’s reaction was volatile with the bond markets indicating that it thought that the increases were transitory as the FED has described them. Equities chopped but ultimately moved higher with new all time highs hit on some indices. Used cars and trucks were again the biggest contributory factor as supply and demand factors are having a severe impact on those markets. Rents also moved higher, potentially indicating a more prolonged period of inflation. Markets continued to chop in the US session and it will take time to establish a firmer trend following the data releases. With Covid-19 case numbers rising in the UK despite the high level of vaccinations Prime Minister Boris Johnson is considering delaying the next phase of reopening by four weeks. The next phase of reopening was due to take place on 21 June but the Delta variant of the virus has seen a significant increase in infections. The delay is to give businesses more certainty and to allow for an even greater number of the population to be vaccinated. The UK reported more than 7,000 new cases for a second day in a row yesterday up from 5,274 a week ago. The Delta variant accounts for approximately 90% of new cases according to Health Secretary Matt Hancock. The Japanese 225 has closed lower by -0.03%. The Hang Seng is trading up 0.37% while the Shanghai Composite is trading down -0.58%. Gold is trading at 1901.00 while USDJPY is trading at 109.330.

The G7 is meeting today and headlines may affect markets. BOE Governor Bailey is speaking this morning. In the afternoon, US UoM Consumer Sentiment is forecast to rise to 84.1 from 82.9. 

USDCAD

The USDCAD pair is now trading around the 1.2086 level having fallen back from the March high of 1.4668 and having broken supports around 1.3000/1.2950. The pair is creating lower highs and higher lows as it consolidates. The 1.2146 level may offer resistance in the short term followed by 1.2200, 1.2265 and 1.2300. A break above 1.2360 may find further resistance at 1.2460 and 1.2500. Ahead of these levels, the 1.2688 area may act as resistance followed by 1.2653 and 1.2600. The pair broke support early last month at 1.2830 and this level may be used ahead of resistance at 1.2880, 1.2900 and 1.3000, followed by 1.3100. Resistance may also be seen at 1.3172/1.3180 followed by 1.3200 and 1.3250. Above the 1.3300 level, resistance is being seen at 1.3389 and 1.3400 followed by the 1.3420 area. The 1.3500 may provide resistance ahead of the 1.3600 level. Further resistance may be seen at the 1.3646 lower high, the 1.3670/1.3686 area followed by the 1.3700 level and the 1.3750 zone of consolidation from late May. The 1.3860 former area of support may now be resistive ahead of 1.1400. The chart contains potential resistance at the 1.4100 round number followed by 1.4141, 1.4180, the 1.4250 area and 1.4298/1.4300 zone. The previous lower high formed at 1.4173 and this may also provide a level to lean against, with a breakout targeting the 1.4400 level. Beyond this the 1.4424 level is followed by 1.4500 and 1.4560. The high created at 1.4660 represents the resistance level to beat, followed by potential resistance at the 1.4700 level. The next area may prove to be resistive at 1.4750. Beyond this, the 1.4800 area may also create an interest for traders. A break above these levels might seek to test 1.4900. Beyond this, the 1.4950 level comes into play followed by 1.5000.

Support was broken around the 1.2590 level from January and the market is backing away from this level. The 1.2053 area may set up as support in the short term but stronger support may be found around 1.2050 in conjunction with the 1.2080 area a key level for traders to watch. Traders may use the area to lean on if higher lows are formed. From there the 1.2000 round number comes into focus with the 1.1960 area potentially being tested if the round number is broken. The mid-May low at 1.2046 may also draw close attention from traders followed by last week’s low at 1.2013. This is followed by the 1.2000 area and 1.1923. 

US 500 Index

The US 500 Index price is currently trading around the 4238.00 area at present. The market found resistance at 4244.00 last month and moved back under 4200.00 to support at 4034.00 before rebounding. The data release yesterday spurred a rally to the 4250.00 level. The 4140.00 area may provide support with resistance at 4250.00. Beyond this area the 4262.00 comes into play followed by 4270.00 and 4285.00 forming a large resistance area. Beyond this area, 4293.00 may be resistive followed by 4300.00 and 4315.00. The 4346.00 then comes into focus. 

Support may be seen at the 4208.00/4200.00 area with the 4180.00 area below. Further support may be used at 4167.00 as the higher low. The 4155.00 area is then followed by the 4140.00 and 4129.00 levels. The 4112.00, 4100.00 levels and the 4064.00/4060.00 area may offer support with the 4026.00 level and the 4000.00 round number below. A loss of this area may open the way to 3988.00 and the 3950.00 area. Support may be seen at 3900.00 followed by the 3885.00/3870.00 area.  A breakdown through 3850.00 may see a rapid move down to 3800.00 followed by the 3750.00 level. The trend line is in place at 3742.00. The 3700.00 round number may also offer support and this is potentially an area to watch which includes the 3715.00 support level. The 3700.00 level is followed by 3661.00 and 3650.00. Further support may come into play around 3644.00, 3600.00/3590.00 and 3580.00 in the event of a deeper selloff to 3550.00 and 3500.00. Below these levels, 3400.00 is followed by 3344.00 and 3311.00. These levels are in turn followed by the 3300.00 area, the 3233.00 higher low level, and the 3200.00 round number area. 

Philip Konchar

Core Spreads

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