Global equity markets have suffered severe swings this morning, the Dow Jones Industrial Index has ranged from 23,779-24,712 so far, giving traders and investors no clear direction as where things are going. Investors are wondering what caused the selloff, basically it was a combination of higher interest rates, whether the Fed will continue its hikes, blue chip stocks looked overbought and stock valuations were above normal levels.
Expect further volatility, don’t know how long, it will be over when its over.
Support Resistance
USDCAD 1.2515, 1.2506, 1.2498 1.2535, 1.2548, 1.2555
[USD, CAD]
USD-CAD has gained nearly 3 big figures from last week’s lows. The stellar U.S. jobs report lit a fire under the U.S. dollar, while the data, which rekindled expectations for Fed tightening, also sparked a spike on sovereign yields and a risk-off theme in global equity and commodity markets, including oil prices. This is a supportive backdrop for USD-CAD, and we expect the pair to remain underpinned. Support is at 1.2475-76. Canada releases December trade data later today. We expect the deficit to narrow to -C$2.1 bln in December from -C$2.5 bln in November, though, given the current dynamics in global markets, will likely be discarded as being backward looking by market participants. The January Ivy manufacturing PMI report is also due, while the Canadian January employment report is up on Friday, which is expected to show a headline of +20.0k and the jobless rate at the major cycle low of 5.7%. The data is potentially supportive for the Canadian buck, though much will depend on whether the risk aversion theme is still persisting in full flight or not.
[EUR, USD]
EUR-USD posted a six-day low of 1.2350 today as the dollar continued to find bids in the wake of Friday’s solid employment report and consequent revamping of Fed tightening expectations. The risk averse backdrop in global markets has also been a positive for the greenback as investors look for safety. While this theme persists, with the Fed expected to lead the way in policy tightening, we expect the dollar to remain a buy-on-dips trade. Initial EUR-USD resistance is at 1.2430-32.
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