Summary

Despite poor revenues on earnings and a less than desirable housing starts number, the equity markets in the US rallied after moving down for most of the morning. The S&P 500 Index bounced off its lows and ended the day up 12 points to 1082.

Tomorrow's Events

Trading Opportunities

USD/CAD

Bank of Canada hiked rates by 25 basis points to 0.75%, as expected. However, the accompanying statement was a bit more dovish than market was expecting, saying further hikes would have to be “weighed carefully” in light of ongoing uncertainty regarding the economic outlook. BOC also noted that the global recovery is not yet self-sustaining, but that risks of an “adverse outcome” in Europe had diminished. BOC sees core and headline inflation staying near 2% target through 2012, but cut the 2010 growth forecast (to 3.5% from 3.7%), cut the 2011 forecast (to 2.9% from 3.1%), and raised the 2012 growth forecast (to 2.2% from 1.9%). The USD/CAD is forming a wedge as macro US issues are forcing the currency pair higher, as the robust nature of the CAD economy is pushing the currency pair lower. A break of support or resistance will lead the way to further increases or descreases.

EUR/USD

Spanish media is quoting Finance Minister Salgado as saying all Spanish banks had passed the stress tests. The underlying message is that all Spanish banks have passed the stress test. Spanish bonds outperformed, with 10-year yields down 7 basis points on the day. With Germany yields down only 1 basis point, Spain spread has tightened. While peripheral spreads have stabilized this past week, they remain elevated and are still signaling significant default risk for many of these countries. The Euro touched resistance near 1.30, but profit take pushed the currency pair back below 1.2900.