All the talk in the market in the moment is about the Volcker Plan. It’s the plan the Obama administration released two weeks ago that called to end prop trading at banks with commercial clients. The latest chatter is that it’s off. The plan will be eliminated or scaled down. The plan was fraught with hurdles and it was a big negative for banking profits. As the chatter circulated, stocks made a late-day rally and risk appetitite shot higher.

One of the big winners was gold. It rallied more than $25 and broke key short-term technical resistance at $1104. It also traced out a massive outside reversal day and put in a double-bottom at $1074. The measured target of the double bottom calls for a new record high, or at least a test of $1220. The upside would be confirmed by a push above the downtrend line that comes in at $1120 today.

Risk assets have improved since Obama took the podium to deliver his first State of the Union address. There was nothing particularily bullish about the speech but stock futures took off, the euro rebounded from below 1.40 and USD/CAD has formed a short-term triple-top.

The parameters of the short-term top are 1.0691 to 1.0591 — a perfect 100 pip range that has been tested three times on the topside and three times on the bottom. The pair is often prone to range trades and we will be keeping an eye on this one because a breakout will likely prove forceful.

On the downside, we have the 100-hour moving average as support as well as the support at 1.0591. We would expect a fall below this support to target at least 1.0500 with 1.0460 as the preferred scenario.

On the topside, the market is facing strong resistance at 1.0750, so we would be prone to taking profits quickly on a breakout. But we would also be eager to buy a break of 1.0750 with 1.0850 as a target.

Overall, we have seen a substantial rally in USD/CAD since falling to 1.02 in the middle of January.  The daily chart shows a nice double-bottom, however, and we would prefer to be buyers as long as it remains above 1.04. We would see a correction to 1.0450 as an ideal buying opportunity.

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High volume and a nearly 2% drop in the S&P 500 to 1116.48 have us in a bearish mood. The USD/JPY chart broke down when Obama announced plans to limit risk trading by separating investment banks and commercial banks while banning prop trading. It’s a story that isn’t going to go away and we expect the losses in USD/JPY aren’t going to go away as well.

For those who are truely bearish on stocks, we think going short EUR/JPY, NZD/USD or CAD/JPY is a better trade but for those who want to mitigate inter-market risk, we see USD/JPY as a better trade.

USD/JPY is forming a minor consolidation between 90.57 and 90.12. Spot is at 90.40 with the 38.2% fibonacci retracement of the Nov-Jan range at 90.36. Expect further consolidation before a break below these levels for an eventual move to 89.30.

The daily chart shows the fibonacci lines. We expect to see a move inside the 50%-61.8% ‘box’ but the short-term will depend on how decisively we can break below the 38.2% retracement level. Our bearish scenario would be negated by a rise above 91.21.