VBCE Weekly Foreign Exchange Wrap Up for Sept 30 – Oct 4, 2019

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

The CAD looked like it was going to outperform for the 3rd consecutive week with gains against all the major currencies into Wednesday's session. Despite a 500+ pt drop in the DJIA on Tuesday and a 7% decline in oil prices (Mon and Tues), USDCAD dropped to 1.3205 – about a 3 week low while the EURCAD rate dropped to 1.4415 – a new 30 month low. The catalyst for the market sell-off was a surprisingly weak U.S. ISM manufacturing index reading. At 47.8 (a reading below 50 signifies economic contraction) it was the worst reading in 10 years and sparked broad-based USD selling, a 3% decline in oil prices, and a 500+ point fall in the DJIA. The trend for the CAD abruptly changed during Wednesday's North American session. Although the USD continued to sell-off against the other major currencies after weaker than expected ADP employment data sparked another market sell-off. Oil prices fell another 4% while the DJIA fell by as many as 650 pts. USDCAD climbed from 1.3205 up to 1.3335 – near a 3 month high. Although markets and oil prices rebounded on Thursday, (oil lost 3% to trade near 9 month lows before bouncing back by 3% while the DJIA also gained 500+ pts after initially falling 400pts) USDCAD held steady above the 1.3300 level. After marginal gains to 1.3347 and a dip to 1.3310, a 2nd move higher stalled at 1.3345. The pairing eased lower to 1.3310 heading into the Friday U.S. employment data release. The results were mixed – the unemployment rate moved from 3.7% down to 3.5% - a 50 year low while August headline data was revised from 130,000 up to 168,000. The Sept headline was weaker than expected and wage inflation was low. USDCAD dipped to 1.3298 before climbing back to 1.3334. The move higher was short-lived with a move down to 1.3310 into the close. The CAD ends up as the worst performing currency on the week. The USD was the 2nd worst performing currency having also given up gains from earlier in the week.

Weekly Open

Low

High

Weekly Close

USDCAD

1.3242

1.3205

1.3347

1.3313

EURCAD

1.4485

1.4415

1.4674

1.4610

GBPCAD

1.6286

1.6192

1.6554

1.6422

JPYCAD

0.01226

0.01222

0.01249

0.01245

AUDCAD

0.8952

0.8836

0.9026

0.9002

Key Events for the week:

*USDCAD falls to 3 week lows before climbing to 1 month highs

*EURCAD and EURUSD fall to 30 month lows before climbing to 2 week highs

*GBPCAD and GBPUSD fall to 1 month low before climbing to 2 week highs

*JPYCAD and JPYUSD climb from 2 month lows towards 1 month highs

*AUDCAD falls to 9 year low before climbing to 2 week high

*AUDUSD falls to 10 year low before climbing to 1 week high

*Crude oil (WTI) declines 10% towards 2019 lows before climbing 5% ($51.19 - $56.59)

*USD index climbs to 3 year high before falling towards 2 wk low: range 98.63 – 99.67

*U.S. 10 year Treasury yields fall towards 3 year low: range 1.51% to 1.75%

*China Caixin manufacturing PMI: 51.4 (exp 50.2 / prev 50.4)

*Germany retail sales m/m: 0.5% (exp 0.6% / prev -0.8%)

*Germany unemployment rate: 5% (exp 5% / prev 5%)

*UK GDPQ2 (qoq): -0.2% (exp -0.2%/prev -0.2%) y/y: 1.3%(exp 1.2%/prev 1.2%)

*Germany CPI harmonized y/y: 0.9% (exp 1.0% / prev 1.0%)

*Japan unemployment rate: exp 2.3% / prev 2.2%

*Japan tankan large manufacturing outlook Q3: exp 1 prev 7

*Japan tankan large all industry CAPEX Q3: exp 7.0% prev 7.4%

*Australia interest rate decision: 0.75% (exp 0.75% / prev 1.00%)

*Germany Markit manufacturing PMI: 41.7 (exp 41.4 / prev 41.4)

*Eurozone Markit manufacturing PMI: 45.7 (exp 45.6 / prev 45.6)

*UK Markit manufacturing PMI: 48.3 (exp 47.0 / prev 47.4)

*Eurozone CPI core y/y: 1.0% (exp 1.0% / prev 0.9%)

*Canada GDP (July): 0% (exp 0.1% / prev 0.2%)

*Canada Markit manufacturing PMI: 51.0 (exp 50.4 / prev 49.1)

*U.S. Markit manufacturing PMI: 51.1 (exp 51.0 / prev 51.0)

*U.S. ISM manufacturing PMI: 47.8 (exp 50.1 / prev 49.1)

*U.S. ADP employment change: 135,000 (exp 140,000 / prev 157,000 *from 195k)

*Eurozone retail sales y/y: 2.1% (exp 1.9% / prev 2.2%)

*U.S. ISM non-manufacturing PMI: 52.6 (exp 55.0 / prev 56.4)

*U.S. non-farm payrolls: 136,000 (exp 145,000 / prev 168,000)

*U.S. unemployment rate: 3.5% (exp 3.7% / prev 3.7%)

*U.S avg hourly earnings m/m 0% (exp 0.3%/prev 0.4%) y/y 2.9% (exp 3.2%/prev 3.2%)

*U.S. trade balance: -$54.9 Billion (exp -$54.55 billion / prev -$54 billion)

*Canada int'l merchandise trade: -$0.96 billion (exp -$1.00 billion / prev -$1.38 billion)

*Canada Ivey PMI: 48.7 (exp 54.3 / prev 60.6)

On Tap for This week:

Tue Oct 8: China Caixin services PMI: exp 52.9 / prev 52.1

Germany industrial production m/m: exp 0.3% / prev -0.6%

U.S. producer price index ex food & energy y/y: exp 2.2% / prev 2.3%

Wed Oct 9: U.S. FOMC minutes

Japan machinery orders m/m: exp -9.9% / prev -6.6% y/y: exp -4.5% / prev 0.3%

Thur Oct 10: Australia consumer inflation expectations: exp 3.2% / prev 3.1%

Germany trade balance: exp €18.6 billion / prev €20.2 billion

UK manufacturing production m/m: exp -0.1% / prev 0.3%

UK GDP Aug: exp 0% / prev 0.3%

U.S. CPI m/m: exp 0.1% / prev 0.1% y/y: 1.7% / prev 1.7%

U.S. CPI ex food & energy m/m: exp 0.2% / prev 0.3% y/y: exp 2.4% / prev 2.4%

Fri Oct 11: Canada net employment change: exp 40,200 / prev 81,100

Canada unemployment rate: exp 5.7% / prev 5.7%

Canada average hourly wages y/y: prev 3.78%

Technically, USDCAD is neutral / bullish. USDCAD broke below recent support at 1.3231 and fell to a 3 week low Tuesday evening at 1.3205. The move was short-lived and a large reversal took place Wednesday sending USDCAD back above the broken 1.3231 level and through the 1.3290 – 1.3310 resistance zone. Topside rallies stalled at 1.3247 on Thursday and 1.3240 on Friday – just below the September highs (Sept 2 = 1.3360 and Sept 3 = 1.3383) For a change in trend, a break of the September highs would target the June 2019 highs (1.3430 and 1.3530). A sustained move below 1.3205 would target recent lows near 1.3130.

Topside targets to consider: 1.3340, 1.3380, 1.3430, 1.3480

Downside targets to consider: 1.3280, 1.3210, 1.3180,1.3140

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

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