VBCE Weekly FX Wrap Up and Forecast for Aug. 13 - 17thThe CAD was the best performing currency this week while the USD and the GBP finished at the back of the pack. The USD saw broad gains early in the week with the USD index reaching a new 13 month high (97.00) on Wednesday. From that point, the USD broadly declined as global equity markets enjoyed strong gains and the currency crisis in Turkey eased. (The TRY recovered 20% against the USD this week after last Friday's rout) Oil prices were volatile losing as much as 5.5% before recovering to close the week down 3% although this seemed to have little impact on the CAD. After a dip from 1.3170 down to 1.3048 earlier in the week, USDCAD moved higher to challenge the 1.3170/1.3177 area on 3 more occasions. Canadian CPI inflation data out Friday morning was much higher than expected taking USDCAD from 1.3162 down to 1.3064. After a brief correction up to 1.3107, the pairing eased lower to close the week near the lows at 1.3057. Inflation grew at the highest rate since 2011, effectively putting pressure on the Bank of Canada to perhaps raise interest rates 2 more times this year.
Yesterday, USDCAD held a 1.3111 – 1.3176 range finishing the day unchanged at 1.3150. Overnight, there was an early move to 1.3171, the 4th time this week the 1.3170/1.3175 resistance zone has been tested (also representing a 4 week high). Canadian inflation data for July was released this morning coming in at the highest level since 2011. The much higher than expected headline readings caused the CAD to surge taking USDCAD down 1 cent to 1.3063, just shy of this week's low of 1.3048. The probability of the Bank of Canada hiking interest rates two more times this year has increased. The pairing has since corrected higher to 1.3107 before another round of selling has taken it back down to 1.3081.
U.S. stocks surged Thursday after retail behemoth Walmart Inc. reported its best sales growth in more than a decade and China's Ministry of Commerce said it would hold talks with American officials to resolve the trade war between the two countries. The dollar fell for the first time in six days and Treasuries were steady.
The major equity benchmarks were up. The S&P 500 Index rose, led by telephone and financial shares, and the Dow Jones Industrial Average added more than 300 points, or 1.3 percent. Walmart gained the most in 10 years. Mining stocks and commodities rebounded from Wednesday's slide as silver and copper rallied. Gold bounced back slightly after hitting a 19-month low. Oil slipped below $64 a barrel.after retail behemoth Walmart Inc. reported its best sales growth in more than a decade and China's Ministry of Commerce said it would hold talks with American officials to resolve the trade war between the two countries. The dollar fell for the first time in six days and Treasuries were steady. The major equity benchmarks were up. The S&P 500 Index rose, led by telephone and financial shares, and the Dow Jones Industrial Average added more than 300 points, or 1.3 percent. Walmart gained the most in 10 years. Mining stocks and commodities rebounded from Wednesday's slide as silver and copper rallied. Gold bounced back slightly after hitting a 19-month low. Oil slipped below $64 a barrel.
U.S. stocks headed for their worst day in 2 months, joining a broad decline in global equities as disappointing earnings from Chinese internet giant Tencent Holdings Ltd. roiled technology shares and a rout in commodities weighed on resource producers. Treasuries rose with the USD, and crude plunged to below $66 a barrel. The S&P 500 Index fell for the 5th time in 6 sessions and the Dow Jones Industrial Average dropped almost 300 points, or more than 1%, with robust retail sales data doing little to boost spirits among American investors. Tencent's first profit decline in at least a decade rattled emerging-market equities and made the Nasdaq 100 Index the worst performer among U.S. benchmarks. Raw-materials producers dragged European shares down as copper and zinc sank to the lowest in more than a year. In Turkey, the lira gained after the nation's banking regulator moved to deter short-selling in the currency. While the nation's assets stabilized, other emerging-market currencies continued to buckle as President Recep Tayyip Erdogan intensified a diplomatic feud with his U.S. counterpart Donald Trump with a spate of new import tariffs. With the bull market in American stocks just one week away from becoming the longest in history, investors have become increasingly cautious amid lingering trade tensions between China and the U.S. Markets have been rocked over the past week as turmoil in Turkey weighed on sentiment across many emerging- and developed-nation assets. The country announced an additional tax on imports of a broad range of American goods on Wednesday, signaling its dispute with the U.S. will continue.
U.S. stocks halted the longest slide since March and the dollar weakened from a 14-month high as global markets steadied in the wake of Monday's Turkey-induced turmoil. Crude rose. All major U.S. benchmarks were higher and the S&P 500 Index advanced for the first time in five days, though gains were muted amid thin summer trading. Home Depot Inc. climbed after results topped estimates, while Tesla Inc. gained after the latest tweets from Elon Musk. The 10-year Treasury yield held near 2.88 percent and the dollar slumped versus major peers.
U.S. stocks climbed and European shares reversed earlier losses to trade higher as investors tried to gauge how the economic crisis in Turkey could bleed into global markets. Most major U.S. equity benchmarks were higher in light summer trading, led by the Nasdaq 100 Index. Volume on the S&P 500 Index was down nearly 20 percent from normal for this time of day. The Stoxx Europe 600 Index recovered from its lows but was still dragged down by banks, which are heavily exposed to borrowers in Turkey. Treasuries dipped and Italian bonds led a slump in European peripheral debt. Gold fell with oil. The Turkish lira tumbled again alongside the country's equities after President Recep Tayyip Erdogan maintained his defiance toward both the U.S. and financial-market orthodoxy in speeches on Sunday. Central bank moves to boost liquidity provided little relief. The pain spread across emerging-market assets and the South African rand touched the lowest since June 2016.
The JPY was the best performing currency this week while the USD was a close 2nd. Japan had better than expected GDP data while also benefitting from its safe-haven status in the wake of Friday's global equity market sell-off. USDCAD initially climbed to 1.3040 before falling to a 2 month low at 1.2960 early in the week. Headlines that Saudi Arabia was selling Canadian investments in retaliation to Canada's opposition of women's rights violations subsequently sent USDCAD from 1.3040 up to 1.3120. The move was short-lived with USDCAD falling to 1.3005 late Wednesday on positive NAFTA headlines / technical selling. The pairing re-tested 1.3120 resistance in early Friday trade on broad USD strength (USD index surged to a 13 month high) emanating from risk aversion flows from Turkey's currency crisis. The Turkish lira lost 20% on Friday alone and has lost 50% of its value since the beginning of July. Canada posted solid employment headlines taking USDCAD down to 1.3040 as 54,100 jobs were added while the unemployment rate dropped to 5.8% - near a 40 year low. Details within the report suggested the report was not as good as the headline suggested: 28,000 full time jobs were lost while 82,000 part-time jobs were created. Hourly earnings data declined to 3.0% from 3.5% year on year. Given the risk aversion flows / broad USD strength, USDCAD climbed to 1.3153 and held a 1.3115 – 1.3150 range for the balance of the session.
Yesterday, USDCAD initially dropped from 1.3030 down to 1.2997 before climbing to 1.3065. The pairing then dropped to hold a 1.3030 – 1.3050 range for the balance of the session. Overnight, the Turkish Lira sell-off continued spilling over into equity and currency markets. The Turkish Lira has fallen 20% today alone – 50% over the past month to historic lows against the USD. The USD index surged to a 13 month high while concerns the currency crisis will have great impact on banks in the Eurozone has the EUR trading near 1 year lows against the USD / 7 month lows against the CAD. USDCAD climbed to 1.3124 before falling back to 1.3080 ahead of the Canadian employment and U.S. inflation reports. Canada added 54,100 jobs while the unemployment rate dropped towards 40+ year lows @ 5.8%. U.S. inflation data was flat while the earnings component was soft. USDCAD dropped to 1.3040 but quickly climbed back as Canada shed 28,000 full-time jobs / added 82,000 part-time jobs in July. USDCAD has since tested 1.3113 and fallen back to 1.3075 as volatility remains elevated.
U.S. wholesale prices were unchanged in July as costs for services fell for the first time this year, a Labor Department report showed Thursday in Washington. The figures, which measure wholesale and other selling prices at businesses, indicate price pressures in the production pipeline were fairly contained at the start of the second half of 2018. While U.S. demand is rising, there's concern about higher materials costs and persistent uncertainty as the Trump administration imposes tariffs and other nations including China retaliate. The cost of goods rose 0.1 percent from June, bringing the annual increase to 4.5 percent -- the biggest gain since December 2011, the report showed. Services prices decreased 0.1 percent from the prior month, reflecting lower margins at wholesalers and retailers.
The CAD was the best performing currency for the 2nd consecutive week reaching multi-month highs vs most currency pairings. USDCAD fell from 1.3080 down to 1.2990 before climbing to 1.3098. The spike higher was short-lived coming off some NAFTA related headlines that Canada was to be excluded from a meeting between the U.S. and Mexico. The same day, Canada posted a very strong May GDP figure sending USDCAD down to 1.2982. The pairing held a 1.2967 – 1.3040 range over the balance of the week helped by some NAFTA positive headlines and positive market sentiment. Also, helping the CAD were some very strong trade data for the month of June. Despite the introduction of steel and aluminum tariffs in June, Canada's trade deficit surprisingly narrowed to the best level in 19 months. In addition, Canada's exports surged to a record $50.7 billion.
The rally in U.S. stocks faltered as China and America escalated their trade dispute with fresh tariffs. Oil slumped and Treasuries turned higher. The S&P 500 Index edged lower after a four-day advance as Washington and Beijing set dates for new levies on billions in goods. Trading was 20 percent below average. Energy producers led losses as crude slipped below $68 a barrel following inventory data. Canada's dollar and stocks slipped after Saudi Arabia was said to begin selling the nation's assets as part of a diplomatic dispute. Traders remain on edge as global trade tensions welled up again, with the U.S. saying it will begin imposing 25 percent duties on an additional $16 billion in Chinese imports in two weeks, and the Asian country saying it's set to retaliate. Exports from the second-biggest economy grew faster than expected in July and imports surged, signaling the spat has yet to take the toll on shipments that it has on equities. While the USD and yen strengthened, the pound hit its lowest against the euro since September as traders sought protection against a no-deal Brexit. Treasury yields held steady before the biggest-ever 10-year note auction.
Tech companies led gains in U.S. stocks on favorable earnings reports as Apple Inc.'s market value reached $1 trillion. The dollar climbed with oil. The Nasdaq Composite Index rose for a third day as Tesla Inc. and payments processor Square Inc. jumped after reporting second-quarter results. Exporters such as Boeing Co., 3M Co. and DowDuPont Inc. weighed on the Dow Jones Industrial Average after Donald Trump asked his trade representative to consider hiking tariffs on $200 billion of Chinese goods. European equities tracked declines in China spurred by renewed trade concerns. The dollar strengthened, while the pound dropped as the Bank of England's hawkish rhetoric failed to convince investors of a brighter economic outlook. Turkey's lira fell to a record as the U.S. imposed sanctions on its NATO ally over the imprisonment of an American pastor.
U.S. equities climbed along with European stocks as positive earnings reports boosted investor sentiment, and after China's efforts to support its economy spurred interest in higher-risk assets across Asia. The S&P 500 Index opened higher Tuesday, as the likes of Boeing climbed on strong results. Google parent Alphabet anchored a big leap in tech stocks after beating analysts' estimates, sending the Nasdaq 100 Index to a record intraday high. Carmakers and banks were among the biggest winners in the Stocks Europe 600 Index, as PSA Group said subsidiary Opel turned a profit and lender UBS Group AG posted better-than-forecast results.
U.S. and European stocks dropped on Monday as investors digested warnings from the world's financial leaders about the impact of protectionism on growth. Oil climbed amid tension between the U.S. and Iran. The S&P 500 Index declined, pulled down by tech and industrial shares. Treasuries slipped while the dollar held steady. The Stoxx Europe 600 Index edged lower after sudden changes in leadership at Fiat Chrysler hit carmakers, while travel companies also declined after Ryanair posted a 20% delcine in first-quarter profit. Commodities climbed, with WTI oil advancing after President Donald Trump warned his Iranian counterpart not to threaten the U.S. The ratcheting up of rhetoric is offsetting a mixed earnings season, which continues on Monday with Alphabet the main focus. The world's finance chiefs over the weekend said global growth remains robust and many emerging-market countries are better prepared to face crises, but risks to the world economy have increased. Also rattling investors, Trump took issue with the yuan's six-week slide to the weakest level in more than year, raising concern that the America-China trade war is now spilling over into currency markets.
Steve Brown, Senior Corporate Trader | Stevebrown@vbce.caThe CAD had a strong start to the week only to succumb to the broader uptrend in the USD mid-week. Fed Chair Powell offered up some hawkish comments that propelled the broad USD index (DXY) to its highest level in more than 1 year. After testing the 1.3108 level early in the week, USDCAD climbed to 1.3292 on Thursday – a 3 week high. However, the trend changed abruptly as the USD sold off heavily during Friday's session. U.S. President Trump stated that he was "not thrilled" with the U.S. Fed interest rate hikes and that the USD was too strong – the strong USD puts the U.S. at a disadvantage on trade with other countries. Also, on Friday, Canadian retail sales data for May saw a marked improvement on April data while inflation climbed more than expected to a 6 year high. This increases the probability that the Bank of Canada will hike interest rates again in October. USDCAD declined from 1.3292 – a 3 week high to 1.3115 – near a 1 week low during Friday's session. USDCAD had climbed from 1.3157 up to 1.3292 just one day prior. After hitting a 1 year high on Thursday, the USD index saw its weekly gains erased during the course of Thursday's NA session and Friday trade. The USD finishes the week as the worst performing currency along with the GBP which suffered from a combination of poor economic data and BREXIT concerns. The JPY, EUR, and CAD were the best performing currencies this week. Oil was under pressure falling 5% early in the week only to surge higher by 6% over the final 3 days. Saudi Arabia reported that they do not intend to boost crude oil supply levels this month while planning to decrease supply levels in August.
Yesterday, USDCAD climbed from 1.3160 up to 1.3292 – a 3 week high amidst technical USD buying. The USD index (DXY) broke through a key resistance zone to trade at its highest level in 1 year. Part way through the North American session Trump commented that he was "not thrilled" with the U.S. Fed hiking interest rates and that the USD was too strong. The USD suddenly sold off taking USDCAD down to 1.3225. The move was short-lived with USDCAD bouncing back to hold near 1.3260 for the balance of the day. Overnight, there was a retest of 1.3292 followed by a decline to 1.3230 ahead of the Canadian retail sales and inflation data. After a weak performance in April, retail sales bounced back strongly in May (including positive revisions to April data). Inflation jumped more than expected to the highest annual rate in 6 years. The CAD surged on the news with USDCAD falling to 1.3115 – just shy of Monday's 1.3108 low. The pairing has since bounced to 1.3140.
Yesterday, USDCAD climbed from 1.3195 up to 1.3261 before falling to 1.3160. The broad-based USD strength witnessed in the Asian and London sessions was erased during yesterday's North American session. USD weakness continued in Asian trade today on the back of much stronger than expected Australian job gains (+50,900 vs. exp 17,000). USDCAD dipped from 1.3180 down to 1.3157 accordingly. The trend changed sharply heading into the London session with broad-based USD strength taking USDCAD back up to 1.3246. A combination of weak UK retail sales data and upbeat U.S. data (jobless claims data near a 50 year low) has the USD holding gains into the North American session this morning. USDCAD has re-tested yesterday's 1.3260 high followed by a pull-back to 1.3225 as oil prices surged $2 to $70/barrel on comments from Saudi Arabia that they do not intend to boost supply levels this month while planning to decrease supply in August. USDCAD has since bounced back to session highs.
U.S. equities mostly edged lower as shares of slumping energy and technology companies offset gains in financials after Morgan Stanley earnings beat forecasts. European shares advanced after a mixed session in Asia. The Nasdaq dropped from a record high as Google parent Alphabet Inc faced a $5 billion fine. The USD strengthened as Federal Chairman Jerome Powell began a 2nd day of testimony before Congress on the U.S. economy after delivering an upbeat assessment Tuesday, helping spur declines in raw materials prices and emerging-market currencies. The greenback outperformed most of its major peers, helping push down an index of developing-nation currencies by the most in 2 weeks. China's yuan approached its weakest close in almost a year. The GBP slumped after U.K. inflation came in below expectations, while CPI for the euro zone matched forecasts.
U.S. technology shares fell as disappointing subscriber growth from Netflix threw a wet blanket over the rest of the FAANG stocks. The dollar strengthened as Federal Reserve Chairman Jerome Powell made the case for further tightening before a U.S. Senate panel. The Nasdaq 100 slumped for a second day, as Netflix helped to drag down Facebook, Apple, Amazon and Google parent Alphabet. Results from Goldman Sachs narrowly beat investor expectations, while trading revenue disappointed. On the Stoxx Europe 600 Index, gains in mining and chemicals shares were outweighed by declines in telecommunications and household goods.
U.S. equities drifted between gains and losses and European stocks were mixed as traders looked toward company results after lackluster economic data out of China spurred declines for many Asian shares. Earnings were better-than-expected from the likes of Bank of America Corp and BlackRock Inc while there was an upbeat early release from Deutsche Bank AG, but it did little to spur stocks. The S&P 500 traded on either side of the 2,800 level, and most industry groups fell on the Stoxx Europe 600 Index, overwhelming gains by builders and banks. Shares in Asia also declined earlier, amid thin volumes in most markets and with Japan shut for a holiday. That helped the yen steady after its biggest weekly slide in 10 months.
With no fresh signs of a trade war escalation and President Donald Trump at a summit with Vladimir Putin, investors will no doubt remain occupied by a slew of numbers coming over the next few days, including economic data -- such as Monday's mixed figures from China -- and company earnings. Later this week Federal Reserve Chairman Jerome Powell is expected to lay the groundwork for further tightening.