USDCAD and US 500 Index

Markets are reeling this morning as stories from China have dampened the neutral sentiment that had settled price action this week. The main disruptive news centres on China’s decision to not set a GDP target for this year. Last year the target for GDP was set between 6.0% and 6.5% and came in at 6.1%. This year due to the disruption caused by the Covid-19 outbreak and the heightened uncertainties, the decision was taken to avoid setting a target but laid out a range of goals in other areas. China is seeking to create 9M urban jobs, have a jobless rate around 6%, have inflation around 3.5% (from 3% last year), and maintain a budget deficit above 3.6% of GDP (it was 2.8% last year). They are also looking to sell CNY 1T of anti-virus bonds this year. Further economic targets are to keep yuan basically stable, to amend monetary policy tools to better serve the economy, to use innovative monetary policy tools to finance the real economy, and to guide money supply significantly higher than last year. The second headline that is moving markets is the report that China is strengthening national security laws in relation to Hong Kong. The report says that the National People’s Congress is planning to pass a bill establishing “an enforcement mechanism for ensuring national security”. China Premier Li Keqiang has said that they will move to safeguard national security in Hong Kong. The measures submitted to China's national legislature for deliberation on Friday focus on a draft on establishing and improving the legal system and enforcement mechanisms for Hong Kong. According to the report the increasingly notable national security risks in HK have become a prominent problem and activities have ... harmed the rule of law, and threatened national sovereignty, security and development interests. The report says that law-based and forceful measures must be taken to prevent, stop and punish such activities, according to the document. There are proposals for “central government departments related to maintaining national security to, according to need, set up structures in Hong Kong, and carry out their responsibilities in accordance with the law”. The new law will prohibit secession, subversion of state power, terrorism & foreign interference. It'll be listed under annex 3 of basic law, bypassing scrutiny of local legislature. Taiwan has expressed concern over the proposal, urging China to start a dialogue with Hong Kong’s people. Taiwan said that it will be more determined to defend democracy and freedom. The Japanese 225 has closed lower by -0.8% while the Hang Seng has taken the brunt of selling, trading below -5%. The Shangai Composite has traded down to -1.7% while gold is trading at 1731.00. USDJPY is trading lower at the 107.400 area. European futures are set to open lower by over -1.0%.

Today the calendar is light with the ECB Monetary Policy Meeting Accounts being released in the early afternoon. This is followed by Canadian Retail Sales which are expected to fall to -10.3% from 0.3% previously. Canadian Core Retail Sales are expected to fall to -4.8% from 0.0% previously.

USDCAD

 

The USDCAD pair is now trading around the 1.4000 level having fallen back from the March high of 1.4668 and having found support around 1.3856. From the current level resistance has formed 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 for the pair has formed around the 1.3967 in the short term, with further light support around the 1.3920 area. Below this area the 1.3900 area may provide support ahead of the 1.3850 potential double bottom. The 1.3730 area may be used as support, along with the 1.3700 round number in the short term which is in turn backed by 1.3680. A loss of this area may open the way to a retest of the 1.3517/1.3500 area followed by 1.3440. Below this level, potential lower areas of support at 1.3385 followed by 1.3320. Under this level the 1.3250 area may be used as potential support ahead of the 1.3000 round number. Traders may potentially lean on this area followed by the 1.2953 level if the round number is broken.

US 500 Index

 

The US 500 Index sold off at the end of February and has retraced above the 61.8% Fibonacci level. The Index found resistance ahead of the 3000.00 level, creating a high at 2981.00, and is now trading around 2925.00 as the market consolidates its gains. The selloff since Late February has been the most extreme selloff for the Index on record, with an equally sharp and record breaking bounce from the low. The price is currently looking to retest the 2920.00 area and has potential support at 2900.00. Further support may be found in the 2860.00/2850.00 area, followed by the 2820.00 area. Initial resistance may be found around 2940.00. The series of lows at 2850.00 from October and February on the chart marks an important area of former support and resistance. A break back higher if the current level holds, targets the 2945.00/2950.00 area which may be used as resistance, followed by the 3000.00 level and the 3026.00 area. The 3140.00 area also featured as support and resistance on the chart.

Support for the Index may form at the 2920.00 followed by 2900.00, 2858.00 and 2840.00 areas in the short term. These areas are followed by potential supports at the 2830.00 and 2800.00 levels further down. Below these levels the 2750.00 area is followed by 2725.00 ahead of the 2700.00 round number. The 2645.00 area may also provide support to price action followed by the 2500.00 area and last week’s low at 2240.00/2437.00. The 2400.00 level is followed by potential support at 2345.00. Below these levels the 2300.00 area and the low at 2275.00 may potentially be used by buyers. The 2250.00 level might follow as potential support and this is in turn followed by the 2200.00 round number. Below this the 2120.00 may be used as support followed by the 2100.00 area. The 2000.00 area could possibly see buyers attempt to enter the market in the event of another selloff.

Phillip Konchar

Core Spreads

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