VBCE Foreign Exchange Wrap Up for Oct. 7 – Oct. 18, 2019 and Currency Forecast

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

The CAD was mixed these past two weeks with gains against the USD and JPY and losses against the EUR and GBP. USDCAD spent much of the previous week (Oct 7 – Oct 10) trading within a narrow 1.3290 – 1.3325 range. The USD and JPY were broadly stronger as trade tensions between the U.S. and China remained elevated. There were talks from the U.S. side on restricting capital flows into China while China's trade delegation to Washington was reportedly cutting its visit short. There were also reports that a Brexit deal was unlikely to be put together before the Oct. 31 deadline. The trend began to shift during Thursday, Oct. 10th. U.S. CPI was weaker than expected while positive Brexit related meetings saw the GBP gain momentum and surge towards 4 month highs. On Friday the 11th, Canadian jobs data beat expectations sending USDCAD down to 1.3170 – near 10 week lows. Canada added 70,000 full time jobs while the unemployment rate declined to 5.5% - a 50 year low. Also, USD and JPY declined further on positive developments with U.S. / China trade talks. USDCAD largely ranged between 1.3195 and 1.3240 between Oct. 14th – 16th before falling to 1.3130 on the 17th. Canada's manufacturing data was better than expected while ADP employment data included a substantial positive revision to August data – 109,000 jobs added from 49,000. U.S. retail sales and industrial production data were weak and the broad USD index DXY declined to a 3 month low. The market probability of another U.S. Fed interest rate cut at the upcoming Oct. 30th meeting has climbed from 44.9% up to 92.5% over the past month. USDCAD edged lower towards 1.3120 on Friday while the GBP uptrend continued on market confidence of a Brexit deal. Over the past two weeks, GBPCAD surged 9 cents while GBPUSD climbed 8 cents. The JPY along with the USD dropped to 3 month lows against the CAD on positive market sentiment that saw the DJIA gain 1,400 pts or 5% from its October lows.

Weekly Open

Low

High

Weekly Close

USDCAD

1.3325

1.3119

1.3347

1.3124

EURCAD

1.4633

1.4532

1.4690

1.4678

GBPCAD

1.6405

1.6232

1.7094

1.7031

JPYCAD

0.01249

0.01207

0.01249

0.01210

AUDCAD

0.9002

0.8878

0.9037

0.8991

Key Events for the week:

*USDCAD falls from 4 month highs towards 3 month lows

*EURCAD climbs to 1 week high / EURUSD up to 2 month highs / still within 2-3 cents of a 3 year low

*GBPCAD and GBPUSD surge to 5 month highs

*JPYCAD and JPYUSD fall to 3 month lows

*AUDCAD falls to 9 year low before rebounding

*AUDUSD climbs to 1 month high

*Crude oil (WTI) declines towards 2019 lows before climbing 7% ($51.58 - $55.08)

*USD index declines from 3 year high (99.26) towards 3 month low (97.18)

*U.S. 10 year Treasury yields rebound from 3yr low to 1m high: range 1.52% to 1.79%

* China Caixin services PMI: 51.3 (exp 52.9 / prev 52.1)

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

*U.S. producer price index m/m: -0.3%(exp0.1%/prev0.1%)y/y1.4%(exp1.8%/prev1.8%) *PPI ex food & energy m/m: -0.3%(exp 0.2%/prev 0.3%)y/y: 2.0%(exp 2.3%/prev 2.3%)

*U.S. FOMC minutes https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20190918.pdf

*Japan machinery orders y/y: -14.5% (exp -10.8% / prev0.3%)

*Germany trade balance: €18.1 billion (exp €19.1 billion / prev €20.5 billion)

*UK manufacturing production m/m: -0.7% (exp 0% / prev 0.4%)

*UK GDP Aug: -0.1% (exp 0% / prev 0.4%)

*U.S. CPI m/m: 0 (exp 0.1% / prev 0.1%) y/y: 1.7% (exp 1.8% / prev 1.7%)

*U.S. CPI ex food&energy m: 0.1% (exp 0.2%/prev 0.3%) y: 2.4%(exp 2.4%/prev 2.4%)

*Canada net employment change: 53,700 (exp 10,000 / prev 81,100)

*Canada unemployment rate: 5.5% (exp 5.7% / prev 5.7%)

*Canada average hourly wages y/y: 4.25% (prev 3.78%)

*China trade balance: $39.65 billion (exp $33.3 billion / prev $34.83 billion)

*China exports: -3.2% (exp -3.0% / prev -1.0%)

*Eurozone industrial production m/m: 0.4% (exp 0.3% / prev -0.4%)

*China CPI y/y: 3.0% (exp 2.9% / prev 2.8%)

*Japan industrial production y/y: -4.7% (exp -4.7% / prev -4.7%)

*UK average earnings ex bonus: 3.8% (exp 3.7% / prev 3.9%)

*Germany ZEW survey – economic sentiment: -22.8 (exp -27 / prev -22.5)

*UK CPI y/y: 1.7% (exp 1.8% / prev 1.7%)

*Eurozone CPI y/y: 0.8% (exp 0.9% / prev 1.0%)

*U.S. retail sales: -0.3% (exp 0.3% / prev 0.6%) control group: 0% (0.3% / prev 0.3%)

*Canada CPI m/m: -0.4% (exp -0.2% / prev -0.1%) y/y: 1.9% (exp 2.1% / prev 1.9%)

*BOC CPI core y/y: 1.9% (exp 1.9% / prev 1.9%)

*Australia employment change: 14,700 (exp 15,000 / prev 37,900)

*Australian unemployment rate: 5.2% (exp 5.3% / prev 5.3%)

*UK retail sales y/y: 3.1% (exp 3.2% / prev 2.6%)

*U.S. industrial production: -0.4% (exp -0.1% / prev 0.8%)

*China retail sales y/y: 7.8% (exp 7.8% / prev 7.5%)

*China industrial production y/y: 5.8% (exp 5.0% / prev 4.4%)

*China GDP Q3 y/y: 6.0% (exp 6.1% / prev 6.2%)

On Tap for This week:

Mon Oct 21: Canada Federal Election (Liberal Minority)

Tue Oct 22: Canada retail sales: -0.1% (exp 0.4% / prev 0.6%)

Bank of Canada Business Outlook Survey

UK Parliamentary vote on Brexit

Wed Oct 23: Canada wholesale sales: exp 0.3% / prev 1.7%

EIA crude oil stocks change: exp 1.725 million barrels / prev 9.281 million

Thur Oct 24: Germany Markit manufacturing PMI: exp 42.0 / prev 41.7

Eurozone Markit manufacturing PMI: exp 46.0 / prev 45.7

ECB interest rate decision: exp 0% / prev 0%

U.S. durable goods orders: exp -0.8% / prev 0.2%

U.S. Markit manufacturing PMI: exp 50.7 / prev 51.1

Fri Oct. 25: no key data

Technically, USDCAD is bearish. USDCAD saw repeated failures to break above the 1.3330 – 1.3345 zone between Oct. 2 and Oct. 10th. The pairing then broke below recent support at 1.3231 as well as the September low of 1.3133 effectively finishing the week near a 3 month low. A sustained move below 1.3130 should target the July / 2019 low of 1.3016.

Topside targets to consider: 1.3145, 1.3240, 1.3300, 1.3340

Downside targets to consider: 1.3120, 1.3016, 1.2970,1.2900

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

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The information and opinions contained herein are gathered from sources which are thought to be reliable but the reader should not assume that the information and opinions are official or final. VBCE makes no warranty concerning the accuracy of the information and opinions, and accepts no liability for the consequences of any actions taken on the basis of the information and opinions provided. The content is for general information only and does not constitute in anyway giving financial advice.