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At the beginning of the week it was looking like we could see a deeper correction in the S&P 500, with price action looking fairly bearish. After the overnight rally the index is now only 1.8% from the all-time high. Earnings in focus tonight include Morgan Stanley, Goldman Sachs, General Electric, Blackrock and Baxter (a good guide for CSL).
The Bank of Canada meeting overnight highlighted that the bank are in no rush to rule out further rate cuts and thus CAD has struggled. USD/CAD has pushed back above the 1.10 level and traders will once again be eyeing the 21 and 55-day moving averages at 1.1049 and 1.1061 respectively. At 10:30pm (AEST) we Canadian inflation and the market expect a 30 basis point increase to 1.4%. A number above here could see the pair fall back below 1.10.
Earlier in the week price action was looking very bearish for the Nikkei, with many in the market looking at the close below the multi-month channel pattern and head and shoulders pattern on the weekly chart. The moves yesterday were significant and we have seen the index re-claim the former channel support. Oscillators are turning higher from the bottom of the range and it looks as the market can now head higher. News that the Japanese government pension fund could be changing its portfolio allocations is clearly helping, as this would mean selling out of poorly performing low risk assets and increasing its weighting to foreign and domestic stocks.
On the daily chart there is a pronounced bear wedge pattern that has been forming since early 2013. The pair needs to break below the rising trend at 1.3710 for the pattern to complete, with the market also eyeing the 55-day moving average just above this level. The MACD is still above zero, while stochastics are at the top end of the range, thus shorting still seems tough right now and unrewarding as the dips have been supported every time. German inflation data on April 29 and then Eurozone flash estimate the following day are now key and could really see the EUR under strong pressure if we don’t see the sorts of rebounds the market expects. Given the chance of a pop in the pair if inflation rises, I would stay neutral on this pair selling rallies to 1.40.