Recap: Week Ending March 20, 2015

March 22, 2015

Equities across North America all closed higher last week as the United States Federal Reserve continued dovish remarks in regards to their interest rate policy. The NASDAQ 100 was the largest gainer on the week, closing up 3.33%. The Dow Jones, which has in recent months been the laggard on moves to the upside, closed up 2.13% last week. The Canadian Toronto Stock Exchange, TSX, did not fair as well as its US counterparts, only closing the week up 1.43%. The move higher in equities comes as extreme volatility entered the USD. The USD Dollar Index, which represents a basket of currencies traded against the Greenback, fell 4 days out of 5 last week. In recent times, the USD has developed a negative correlation with stocks as the currency is making highs it has not seen in years. On the week, the Dollar Index fell 1.25% or the equivalent of 1.24 points, this is the first time in 3 weeks that the index has closed in the red. The move lower in the USD sent gold higher, moving up $23.30 last week. As gold has a negative correlation with the Dollar, a move lower in the Dollar, means gold should catch a bid on inflationary concerns. Bond prices were also bid, with the 30 year US Treasury closing up 3.91 points last week or 2.55%. Another winner on the week was the Canadian currency, which closed up 1.86% or 1 cent. Since the end of January the CAD has been chopping around in a channel it has established at multiyear lows. Taking a technical view of the CAD shows that the MACD, Moving Average Convergence Divergence indicator, is slowly starting to form a bullish signal as the MACD and moving average signal lines converge. The last time that we saw this bullish signal play out in the currency, the CAD rallied over 5 cents. The RSI or Relative Strength Index, also looks bullish for the CAD as it is currently breaking through the oversold level of 30.50 on the daily chart. Values below 30 are considered to be oversold while values above 70 are considered to be overbought. On the RSI, the CAD has been considered oversold since before the start of 2015.

The biggest newsmaker on the week was the US Federal Reserve, which announced that they would once again keep their interest rate, also known as Fed Funds, targeted between 0 – 0.25%. The main indicator investors and traders were looking for in regards to the date of a rate hike was the removal of the word patience from the Fed’s statement. The word was removed, however, Janet Yellen, Chairwomen of the US central bank remarked, “just because we removed the word ‘patient’ from the statement doesn’t mean we’re going to be impatient.” The market understood this as the Fed has become more dovish in regards to keeping rates lower for a longer period of time. This undoubtedly caused a bid to enter the equities market which many believe is being propped by cheap money from lower interest rates. With this being said, the Fed did go on to say that 15 of the 17 voting members expect that interest rates will rise by the end of the 2015 calendar year. On average these members expect to see two rate increases in 2015 to roughly 0.75%. Despite the reality that rates will be rising this year, it appears that the market intends to soak up any low rates it can in the drive to push stocks to levels never seen before.

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