VBCE Weekly Foreign Exchange Wrap Up for July 8 – 12, 2019

Steve Brown, Senior Corporate Trader | Stevebrown@vbce.ca

The USD was the worst performing currency this week on the back of dovish testimony from Fed Chairman Powell Wednesday morning along with dovish FOMC meeting minutes released later that day. The CAD was largely unchanged against the other major currencies although the EUR and GBP held near 2 year lows while the AUD remained lower too near a 9 year low. USDCAD held a 1.3050 – 1.3143 range heading into Wednesday's session. The prepared remarks from the Fed Chairman Powell sent the USD broadly lower taking USDCAD from 1.3138 down to 1.3070. He cited that "uncertainties since the June FOMC continue to dim the outlook" and noted the "risk (that) weak inflation will be even more persistent." The Bank of Canada statement came next and was perhaps a bit more dovish than expected. There was no hint of rate cuts and the Bank did upgrade Q2 growth from 1.3% up to 2.3%. However, it did warn that trade conflicts and uncertainty could affect GDP by as much as 2% by 2021. USDCAD climbed back towards the weekly high at 1.3144. The move higher was short-lived as a combination of the broader USD weakness, a surge in oil prices (oil jumped nearly 6% on the EIA report as inventory declined by nearly 10 million barrels vs. an expected draw of just 3 million barrels), and the inability to break above the 1.3140 / 50 technical resistance level prompted a move lower in USDCAD. The pairing moved to session lows @ 1.3062 after the release of the FOMC meeting minutes which noted that many Fed officials saw a stronger case developing for interest rate cuts. The downtrend continued into Friday's session with USDCAD testing the 1.3017 level – the lowest level since Oct. 24, 2018. There was a brief correction up to 1.3090 (matching the high from Thursday) before the pairing eased lower to close the week at 1.3028. The U.S. Fed decision is July 31 with the market now pricing in a 73.4% probability of a 0.25% rate cut and a 26.6% chance of a 0.50% rate cut. Just 6 weeks ago, the probability that rates would be kept unchanged was 82%.

Weekly Open

Low

High

Weekly Close

USDCAD

1.3075

1.3017

1.3144

1.3028

EURCAD

1.4680

1.4637

1.4774

1.4678

GBPCAD

1.6380

1.6302

1.6427

1.6381

JPYCAD

0.01206

0.01201

0.01210

0.01206

AUDCAD

0.9122

0.9072

0.9157

0.9133

Key Events for the week:

*USDCAD falls to lowest since Oct 24, 2018 - nears 9 month lows

*EURCAD falls towards 22 month low /EURUSD falls towards 1 month lows

*GBPCAD falls to 22 month low / GBPUSD falls towards 27 month lows

*JPYCAD falls towards 3 month low / USDJPY rebounds from 15 month lows

*AUDCAD holds near 9 year lows / AUDUSD climbs towards 2 month highs

*Crude oil (WTI) climbs 6% to 2 month highs: range $57.37 - $61.00 **Oil prices have climbed 20% over the past 5 weeks

*USD index rebounds from 5 month lows: range 96.79 – 97.59

*U.S. 10 year Treasury yields rebound from 3 year lows: range 2.01% - 2.15%

*Germany industrial production: 0.3% (exp -0.4% / prev -2.0%)

*Germany trade balance: €18.7 billion (exp €18.6 billion / prev €16.9 billion)

*U.S. Fed Chairman Powell speech - https://www.federalreserve.gov/newsevents/testimony/powell20190710a.htm

*China CPI m/m: -0.1% (exp -0.1% / prev 0%) y/y: 2.7% (exp 2.7% / prev 2.7%)

*UK industrial production m/m: 1.4% (exp 1.5% / prev -2.9%)

*UK GDP (May): 0.3% (exp 0.3% / prev -0.4%)

*Bank of Canada interest rate decision: 1.75% (exp 1.75% / prev 1.75%) - https://www.bankofcanada.ca/2019/07/fad-press-release-2019-07-10/

*EIA crude oil stocks change: -9.499 million barrels (exp -3.081m / prev -1.085m)

*U.S. FOMC minutes - https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20190619.pdf

*Germany CPI harmonized y/y: 1.5% (exp 1.3% / prev 1.3%)

*U.S. CPI m/m: 0.1% (exp 0% / prev 0.1%) y/y: 1.6% (exp 1.6% / prev 1.8%)

*U.S. CPI ex food & energy m/m: 0.3% (exp 0.2% / prev 0.1%)

*U.S. CPI ex food & energy y/y: 2.1% (exp 2.0% / prev 2.0%)

*Japan industrial production y/y: -2.1% (exp -1.8% / prev -1.8%)

*China exports y/y: -1.3% (exp -2.0% / prev 1.1%)

*China trade balance: $50.98 billion (exp $44.65 billion / prev $41.65 billion)

*Eurozone industrial production: 0.9% (exp 0.2% / prev -0.4%)

On Tap for This week:

Mon July 15: China retail sales y/y: 9.8% (exp 8.3% / prev 8.6%)

China industrial production: 6.3% (exp 5.2% / prev 5.0%)

China GDP Q2 y/y: 6.2% (exp 6.2%/prev 6.4%) qoq: 1.6%(exp 1.5%/prev 1.4%)

Tue July 16: UK avg. earnings ex bonus: exp 3.5% / prev 3.4%)

Germany ZEW survey – economic sentiment: exp -20 / prev -21.1

U.S. retail sales: exp 0.2% / prev 0.5% control group: exp 0.3% / prev 0.4%

U.S. industrial production: exp 0.2% / prev 0.4%

Wed July 17: UK CPI m/m: exp 0% / prev 0.3% y/y: exp 2.0% / prev 2.0%

Eurozone CPI m/m: exp 0.1% / prev 0.1% y/y: 1.2% / prev 1.2%

Canada CPI m/m: exp -0.2% / prev 0.4% y/y: exp 2.0% / prev 2.4%

Bank of Canada CPI core m/m: exp 0.1% / prev 0.4% y/y: exp 2.6% / prev 2.1%

EIA crude oil stocks change: exp -3.081 million barrels / prev -9.499 million

Japan exports: exp -5.6% / prev -7.8%

Thur July 18: Australia employment change: exp 10,000 / prev 42,300

Australia unemployment rate: exp 5.2% / prev 5.2%

UK retail sales m/m: exp -0.3% / prev -0.5% y/y: exp 2.6% / prev 2.3%

Japan national CPI ex food & energy y/y: exp 0.6% / prev 0.5%

Fri July 19: Canada retail sales ex autos: exp 0.3% / prev 0.1%

Technically, USDCAD is bearish. Since trading at 1.3565 - within 1 cent of a 2 year high on May 30th, the pairing has steadily declined over the past 10 weeks and trades at the lowest level since Oct. 24, 2018. The October 1, 2018 low of 1.2785 is the next significant technical level in focus.

Topside targets to consider: 1.3090, 1.3140, 1.3210, 1.3250

Downside targets to consider: 1.3017, 1.2900, 1.2780, 1.2730

Sources: Reuters, Bloomberg, FXStreet, RBC Capital Markets, Bank of Canada.S. Federal Reserve, CNBC, Forexlive, CME Group

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