Risk: SPX broke from its consolidation value area to make new highs. Current levels provide a tactical trading opportunity as SPX enters overbought territory. We look for a correction and for price to re-enter the 2329-2400 value area. A false breakout and a break of 2418 would provide confirmation of our tactically bearish outlook. We would use a correction to enter longs at the low end of our value area.
Commodities: Oil prices remain on their path lower and we see more room for the sell off to continue as there is limited activity from buyers.The drop in oil prices has not resulted in central banks backing off from their hawkish rhetoric yet. Lower oil prices is another headwind for CAD while the drop has created a boost in US real yields thus supporting the dollar.If oil prices stabilize it will be beneficial for both currencies given the changing dynamics of oil production in the US and the positive effect higher oil prices will have on inflation expectations in the US while boosting the credibility of the Feds rate projections.
FX: DXY has found support which we use as a tactical opportunity to enter long USD vs CAD and CHF. USDCAD has respected the upward trend channel. CAD rates markets have adjusted to a hawkish speech from Bank of Canada Deputy Governor Wilkins by pricing in a hike before the end of the year.We believe markets are underpricing the path of US rates. Our view is interest rate differentials will shift from here in favour of being long USDCAD.