Market volatility: Middle East tensions and Fed signals keep investors on edge

Today's expected range for the Canadian Dollar against the major currencies:

US Dollar        1.3725-1.3825

Euro                1.4625-1.4725

Sterling           1.7100-1.7200

WTI Oil (opening level) $81.28

The US Dollar index is flat today but that is only after it gave back some of it's overnight gains on reports that Israel fired some missiles at Iran overnight. There does not seem to have been any damage done and Iran for the moment is playing down the attack but for certain this situation will keep markets on edge and will lend support to the US Dollar keeping stocks and the oil price on edge.

Also helping to support the US Dollar was comments from a Fed official yesterday that if inflation does not show signs of moving towards the 2% target another interest rate hike may be necessary. While this is not "official" Fed policy at the moment it is interesting to see a possible shift in sentiment within the Federal Reserve ranks.

The Canadian Dollar also had an up and down overnight session as it moved in reaction to moves with the US Dollar, at one-point USD.CAD traded back above the 1.3800 (0.7246) before pulling back to open the day near the 1.3760 (0.7267) level this morning. Overall, the Loonie is pretty much trading as expected but hanging in against the other currencies.

Stocks ended up yesterday with a small gain but are poised to trade lower this morning and I would expect they will have a tough day as the markets keep an eye on events in the Middle East. Look for the US Dollar to remain supported throughout the session.