Fighting out of the Red Corner

October 21, 2015

Fighting out of the Red Corner:

“Good morning and welcome to a battle for the ages to decide who will gain the right to call the Canadian election title belt their own. Fighting out of the Red corner, wearing white trunks with Maple insignia and weighing in at 150 lbs, 5 ounces. Representing the Liberal Party of Canada, Justinnnnn Trudeauuuu!”

Yes, that is Canada’s new Prime Minister elect, expected to take office during November. Justin Trudeau, campaigning for the Liberal Party against the current Conservative government led by Stephen Harper, has swept to power on the back of promises to stimulate Canada’s flailing economy with a new wave of fiscal spending.

The fact that Trudeau and his government gained enough seats for a majority is the most significant aspect for markets here. We all know how much markets despise uncertainty and whatever your political persuasion, this is good for markets and the Canadian Dollar.

With the Bank of Canada’s interest rate decision on the calendar tonight, the support that fiscal spending will bring could see Poloz sit on his hands and see if the government can do some of the stimulatory work for him. The question becomes how much weight would a tap on the shoulder from Trudeau asking the BoC to keep a dovish course hold? Governments crave early momentum and even if the bank is unmoved on rates, a dovish tone tonight could give the spur needed.

USD/CAD Daily:
Click on chart to see a larger view.

After featuring USD/CAD in last Friday’s Chart of the Day, price has rallied off the major support/resistance zone in red. Yes the CAD got a boost after the reaction, but the level looks like a line in the sand if the above BoC scenario does in fact play out.


On the Calendar Wednesday:
Other than a the minimal impact 3rd tier news releases from Australia, New Zealand and Japan, the Asian calendar is running on empty today. All the news trading action begins during the New York session with the highlight being the Bank of Canada Rate Statement and accompanying report and press conference.

CAD BOC Monetary Policy Report
CAD BOC Rate Statement
CAD Overnight Rate

USD Crude Oil Inventories
CAD BOC Press Conference
GBP BOE Gov Carney Speaks
USD FOMC Member Powell Speaks


Chart of the Day:
The last time we took a look at US stocks was at the beginning of October when we were watching for any action around end of quarter Indices squaring. With things settled once again and a new quarter in full swing, we take another look at the SP500 in today’s chart of the day.

SP500 Weekly:
Click on chart to see a larger view.

The SP500 weekly shows price having broken the major bullish trend line when stocks were ripping faces off and the world was going to end.

Of course none of the doom and gloom came to fruition and price has pulled back all the way to re-test the broken trend line as possible resistance. The fact that this re-test lines up with the 2nd trend line I have marked on the chart adds extra significance to the level.

SP500 4 Hourly:
Click on chart to see a larger view.

I’ve added a short term channel in red to the above 4 hourly chart, adding to the confluence of resistance forming in this zone. As you can see, there are plenty of levels to the upside that you can manage your short risk around if you want to play the fading game.

Do you see opportunity in trading Indices on MT4?

Dane Williams – @VantageFX

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