Stocks on the Brink and the BoC Holds

January 21, 2016

BoC Holds:
The Bank of Canada held interest rates steady at 0.5% last night. After cutting rates twice in 2015 and huge uncertainties around commodity prices and sagging economic growth off the back of them, this decision polarised both economist opinion and markets themselves.

“All things considered, therefore, the risks to the profile for inflation are roughly balanced. Meanwhile, financial vulnerabilities continue to edge higher, as expected. The Bank’s Governing Council judges that the current stance of monetary policy is appropriate, and the target for the overnight rate remains at 1/2 per cent.”

Taking a look at the 5 minute USD/CAD chart over the decision, the immediate drop shows that markets had overly priced in another rate cut.

USD/CAD 5 Minute:
Click on chart to see a larger view.

The gap was subsequently filled, but the confident tone in the accompanying statement from the ‘Banque Du Canada‘ saw the CAD end the day well on top.

With new Canadian Prime Minister, Justin Trudeau expected to unleash massive fiscal spending, the BoC was happy to take the conservative route.

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

Who’s willing to put their hand up first that they’re looking for a return to the mean on the USD/CAD daily chart?

Stocks on the Brink:
Overnight we saw the SP500 index fall 1.2%, to close at its lowest level since April 2014…

Let me share some of my favourite lines from morning notes that pass my desk in relation to the US stock market overnight:

“Traders saw capitulation day.”

“This was the flush out in equities.”

“What you saw here was an oversold market.”

Look at the charts in the section below and then you tell me if you agree with any of that?


Chart of the Day:
In the Technical Analysis section of the Vantage FX News Centre on Tuesday, we took a look at major trend line support across Indices. With the expectation that the US market will somewhat lead the rest, we feature last night’s SP500 price action in today’s chart of the day.

SP500 Weekly:
Indices chart, SP500 Weekly, 160121
Click on chart to see a larger view.

It’s a little funny saying this after only 2 days of price action, but the weekly chart gives the clearest picture of last night’s lunge down in stocks. But look at where the selling was halted.

SP500 Daily:
Indices chart, SP500 Daily, 160121
Click on chart to see a larger view.

Zooming into the daily and the start of 2016 has just been vertical… Look at the way that the above marked zone soaks up the sellers and has bounced hard each time. How many touches on a level like this is too many touches?

Once this major trend line goes, the similar line across all of the Indices we have been watching will go with it and things are going to get messy.

‘Capitulation Day’ will make a nice headline one day soon, but last night wasn’t it.


On the Calendar Thursday:
AUD MI Inflation Expectations

EUR Minimum Bid Rate
USD Philly Fed Manufacturing Index
USD Unemployment Claims
USD Crude Oil Inventories

Do you see opportunity in our Technical Analysis post covering the higher time frame charts across all major Indices markets? Take advantage of the levels on your own free $50,000 MT4 demo account.

Dane Williams – @VantageFX

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