VBCE Foreign Exchange Wrap Up for Oct. 21 – Oct. 25, 2019

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

The CAD was the top performing currency this week although trading ranges were fairly narrow in comparison to recent weeks. The Federal Election result was a non-factor for the CAD as was a poor retail sales report. The Bank of Canada Business Outlook Survey was good while overall market sentiment remained upbeat with North American equity markets gaining on the week and nearing recent historical highs. USDCAD opened the week near 1.3138 and fell to 1.3080 despite a 2.5% drop in oil prices. The move lower in oil prices was short-lived with OPEC reporting the possibility of deeper production cuts due to weak demand growth in 2020. EIA also reported a surprise draw from inventories sending oil up 7% from the lows to trade near a 5 week high. USDCAD eased lower over the course of the week with a series of lower lows and lower hjghs. The pairing stalled / closed the week near the 1.3050 level – within a half cent of the 2019 July low of 1.3016. The EUR gave back last week's gains falling back below the 1.45 level and nearing 3 year lows. The GBP also gave up a portion of last week's gains as the Brexit saga continued. The probability of a "no deal Brexit" can safely be ruled out however the UK is still seeking an extension to the negotiations while PM Johnson called a Federal election for Dec. 12. The JPY declined towards 6 month lows on U.S. / China trade progress and overall positive market risk sentiment. The market now turns its focus to the October 30th Bank of Canada and U.S. Fed interest rate decisions. The BOC is expected to hold at 1.75% while the Fed is expected to lower its rate from 2.00% down to 1.75%. The market probability of a Fed cut is 93.5% compared to just 53% one month ago.

Weekly Open



Weekly Close


























Key Events for the week:

*USDCAD falls towards 3 month lows / within ½ cent of the 2019 low

*EURCAD falls from 1 week high towards 3 year low / EURUSD falls from 2 month highs towards 10 day lows

*GBPCAD and GBPUSD fall from near 5 month highs towards a 10 day low

*JPYCAD falls to 6 month low / JPYUSD fall to 3 month low

*AUDCAD falls to 9 year low before rebounding

*AUDUSD falls from 1 month high towards 1 week lows

*Crude oil (WTI) climbs as much as 7% towards 1 month highs (range $52.89 - $56.61)

*USD index holds near 3 month lows (range 97.15 – 97.90)

*U.S. 10 year Treasury yields hold near 5 week highs: range 1.73% to 1.81%

*Canada Federal Election (Liberal Minority)

*Canada retail sales: -0.1% (exp 0.4% / prev 0.6%) ex autos: -0.2% (exp 0.1% / 0%)

*Bank of Canada Business Outlook Survey https://www.bankofcanada.ca/2019/10/business-outlook-survey-autumn-2019/

*UK Parliamentary vote on Brexit

*Canada wholesale sales: -1.2% (exp 0.3% / prev 1.4%)

*EIA crude oil stocks change: -1.699 million barrels (exp 2.232m / prev 9.281m)

*Germany Markit manufacturing PMI: 41.9 (exp 42.0 / prev 41.7)

*Eurozone Markit manufacturing PMI: 45.7 (exp 46.0 / prev 45.7)

*ECB interest rate decision: 0% (exp 0% / prev 0%) https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.mp191024~438769bd4f.en.html

*U.S. durable goods orders: -1.1% (exp -0.8% / prev 0.3%)

*U.S. Non-defense capital goods orders ex aircraft: -0.5% (exp -0.2% / prev -0.6%)

*U.S. Markit manufacturing PMI: 51.5 (exp 50.7 / prev 51.1)

On Tap for This week:

Mon Oct 28: Japan Tokyo CPI ex fresh food: exp 0.6% / prev 0.5%

Tue Oct 29: Japan retail trade y/y: exp -0.1% / prev 1.8%

Wed Oct 30: Australia CPI Q3: exp 0.6% / prev 0.6%

Germany unemployment rate: exp 5% / prev 5%

Germany CPI harmonized y/y: exp 0.9% / prev 0.9%

U.S. ADP employment change: exp 132,000 / prev 135,000

U.S. GDP Q3 annualized: exp 1.6% / prev 2.0%

U.S. GDP Q3 price index: exp 1.9% / prev 2.6%

Bank of Canada interest rate decision: exp 1.75% / prev 1.75%

U.S. Fed interest rate decision: exp 1.75% / prev 2.00%

Japan industrial production y/y: exp -4.1% / prev -4.7%

Thur Oct 31: Brexit deadline

China NBS manufacturing PMI: exp 49.5 / prev 49.8

Bank of Japan interest rate decision: exp / prev -0.1%

Germany retail sales m/m: exp 0.5% / prev 0.5%

Eurozone GDP Q3 y/y: exp 1.2% / prev 1.2%

Technically, USDCAD is bearish / neutral. USDCAD did trend lower but stalled ahead of the 2019 / July low of 1.3016. Volatility was exceptionally low as the total weekly trading range was only 86 basis points. In addition, there were a series of lower consecutive USD "highs" – Mon (1.3138), Tue (1.3120), Wed (1.3110), Thur (1.3094), and Fri (1.3078). A sustained move below 1.3016 should target 1.2900 followed by the

Oct. 2018 low of 1.2785. A sustained move above 1.3145 will likely lead to a move back towards 1.3300.

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

Downside targets to consider: 1.3016, 1.2970,1.2900, 1.2840

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


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