CAD soars, GBP rebounds while stocks stabilize at a lower level

Stock markets around the world ‎have been trying to bounce back from Monday’s big selloff. The rebounds have been moderate so far, clawing back up to half of recent losses. Most importantly, the NASDAQ which led the decline has not rebounded more than other US indices. Because of this it appears that this pause may be due more to bears taking a break than renewed bullishness.

This morning finds US indices up 0.2%. The Dax is up 0.5% on positive German ZEW investor survey results. The FTSE is flat, held back by rising UK inflation.

In currency markets, CAD has been the big mover overnight, continuing the rally which started yesterday afternoon. Bank of Canada Deputy Governor Carolyn Wilkins ignited the rally at a lunchtime speech Monday where she indicated‎ that with the drag of lower oil prices on the economy fading, the back is assessing cutting back on stimulus. Recall, the Bank of Canada had cut interest rates from 1.00% to 0.50% back in 2015 to try and offset the impact of the oil price collapse. I suspect that the Bank may also be thinking about reloading in case NAFTA renegotiations starting in August or other potential trade flareups with the US impact the Canadian economy.

Sterling is also having a good day, bouncing back against USD, EUR and JPY. The bounce may be due to a combination of post-election selling fading and UK inflation increasing faster than expected. Rising inflation and a strong UK economy could increase calls for the MPC to consider cutting back on stimulus as well.

US producer prices are due this morning, but the main focus is likely to remain on tomorrow’s Fed interest rate decision. Another increase is expected this week, but where the FOMC goes from here is more of an open question. Attorney General Sessions testifies to the Senate on Russia and Comey today which could set off fireworks in the media but may not have an impact on the markets unless there’s a big surprise of some kind.

Chart Signals: Big CAD breakout, GBP bounce in focus

With indices pausing to consolidate recent declines, focus has shifted to currency markets, particularly CAD which continues to soar today and is breaking out against USD. Sterling is on the rebound from recent weakness but still has to undo a lot of technical damage.

North American and European Indices

US 30 has levelled off to consolidate recent gains between 21,140 and 21,300 with RSI confirming a pause within an uptrend underway. Support has moved up toward 21,200 with the index trading near 21,250.

US SPX 500 is holding steady near 2,430 still consolidating recent gains between 2,417 and 2,438. Last week’s peek up toward 2,445 increasingly looks like a head fake or a bull trap. RSI indicates upward momentum fading.

US NDAQ 100 held its 50-day average near 5,630 and has bounced back up toward 5,725. So far this looks like a common trading bounce with the index still below 5,745 where it broke a previous uptrend and with the RSI still under 50.

UK 100 continues to show signs of peaking with the index still carving out the right shoulder of a head and shoulders top near 7,550 and falling back toward 7,500. RSI peaking at a lower high and sliding toward 50 indicates upward momentum weakening and a downturn pending. Next potential support near 7,475 then 7,400.  

Germany 30 continues to form an ascending triangle below 12,900 with support rising toward 12,700 and the index bouncing toward 12,750. RSI holding 50 indicates continuing accumulation. Initial resistance possible near 12,790 then 12,830 with next support near 12,625.

Commodities

Gold has two key support tests at the 50-day average near $1.260 and 50 on the RSI. Should these levels hold it would suggest that underlying uptrend remains intact and the recent pullback may be ending. Breakdowns, however, would signal a downturn and confirm a double top with next potential support near $1,256 then $1,250.

WTI crude oil is trading between $45.80 and $46.20 following a successful retest of $45.00 round number support. RSI flattening indicates downward pressure may have peaked for now. Next resistance near $46.45 then $47.50.

FX

US Dollar Index is sitting on 97.00 as it swings up and down between 96.45 and 97.65. Current support and resistance near 96.70 and 97.30. RSI suggests a consolidation phase underway within an ongoing downtrend  currently.

USDJPY is sitting on 110.00, pausing within a downtrend. Resistance remains in place near 110.60 with support near 109.55 then 109.00. RSI steady under 50 indicates continuing distribution.

EURUSD is still hanging around $1.1200 trading back and forth in a sideways range between $1.1115 and $1.1190. Initial resistance possible near $1.1235 with initial support near $1.1165. RSI indicates momentum downshifting from upward to neutral.

EURGBP is retesting 0.8800 as support having run into resistance near 0.8860. RSI suggests upward momentum may have peaked and a correction possible. A break down from here would call off a recent breakout with next support near 0.8770 then 0.8700. Next measured resistance on an upturn possible near 0.8920.

GBPUSD held $1.2635 Fibonacci support and has started to rebound, regaining $1.2710 on its way toward $1.2735. RSI suggests downward pressure starting to ease a bit. The pair needs to clear $1.2765, however, to call off a head and shoulders top. 

USDCAD is breaking down today, taking out $1.3310 a Fibonacci level and its 200-day average to signal the start of a new downtrend. Next potential support near $1.3230 and $1.3180. Falling RSI confirms increasing downward pressure.

CADUSD is breaking out today, blasting through the $0.7500 round number and its 200-day average to signal the start of a new uptrend. The pair has advance don $0.7540 with next resistance after that possible near $0.7560 and $0.7600. Rising RSI confirms increasing upward momentum.

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