VBCE Foreign Exchange Wrap Up for Feb. 3 – 7, 2020

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

The CAD broadly recovered as the risk aversion flows were largely reversed from the previous week. North American equity markets rallied strongly for four consecutive days to new historical highs before a slight pull-back on Friday as coronavirus fears largely dissipated. The outbreak appears to be stabilizing and many companies in China are set to resume operations. The USD was the best performing currency on the week with the CAD and AUD close behind. USDCAD climbed from 1.3232 up to 1.3302 Monday before falling back to 1.3264 despite a 4% drop in oil prices on Tuesday. Wednesday saw another test of 1.33 before a 5% rebound in oil prices saw USDCAD fall back to 1.3263. A much stronger than expected U.S. ADP employment reading led the USD broadly higher taking USDCAD back up to 1.3302. That level was rejected again with a move down to 1.3273. Thursday's session saw more of the same with another test of 1.3300 followed by a decline to 1.3283. Risk aversion crept into the markets on Friday and that prompted a move to 1.3316/21 in USDCAD – equivalent to the December 2019 high. Canadian employment data was surprisingly strong on all fronts sending USDCAD down to 1.3278. The move was short-lived with the pairing settling near 1.3300 into the close. U.S. headline jobs data was also better than expected although there was a large negative revision of 514,000 jobs to 2019 data.

Weekly Open

Low

High

Weekly Close

USDCAD

1.3239

1.3232

1.3321

1.3308

EURCAD

1.4682

1.4548

1.4720

1.4563

GBPCAD

1.7439

1.7133

1.7459

1.7156

JPYCAD

0.01221

0.01207

0.01226

0.01212

AUDCAD

0.8860

0.8849

0.8997

0.8872

Key Events:

*USDCAD holds near 5 month highs / unable to break above Dec 2019 high

*EURCAD falls from near 5 month highs towards a 1 week low

*GBPCAD falls from near 2 month highs towards a 1 week low

*JPYCAD falls to 1 week low

*AUDCAD falls towards 10 year lows

*Crude oil (WTI) falls to 13 month low before 6% rally higher (range $49.44 - $52.30)

*USD index (DXY) hits 4 month high (range 97.44 – 98.71)

*U.S. 10 yr Treasuries climb from near 4 year lows: range 1.51% to 1.69%

*China Caixin manufacturing PMI: 51.1 (exp 51.3 prev 51.5)

*Germany Markit manufacturing PMI: 45.3 (exp 45.2 prev 45.2)

*Eurozone Markit manufacturing PMI: 47.9 (exp 47.8 prev 47.8)

*UK Markit manufacturing PMI: 50 (exp 49.8 prev 49.8)

*Canada Markit manufacturing PMI: 50.6 (exp 49.6 prev 50.4)

*U.S. Markit manufacturing PMI: 51.9 (exp 51.7 prev 51.7)

*U.S. ISM manufacturing PMI: 50.9 (exp 48.5 prev 47.8)

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

*China Caixin services PMI: 51.8 exp 52.6 prev 52.5

*Eurozone retail sales y/y: 1.3% exp 2.4% prev 2.3%

*Canada Int'l merchandise trade: -$0.40 billion exp -$0.61 billion prev -$1.2 billion

*U.S. ADP employment change: 291,000 exp 156,000 prev 199,000

*U.S. trade balance: -$48.9 billion exp -$48.2 billion prev -$43.7 billion

*U.S. ISM non-manufacturing PMI: 5.5 exp 55 prev 54.9

*Australia retail sales: -0.5% exp -0.2% prev 1%

*Germany trade balance: €15.2 billion exp €15.0 billion prev €18.6 billion

*Germany industrial production m/m: -3.5% exp -0.2% prev 1.2%

*China trade balance: exp $38.64 billion prev $47.21 billion

*China exports y/y: exp -4.8% prev 7.9%

*Canada net employment change: 34,500 exp 15,000 prev 27,300

*Canada unemployment rate: 5.5% exp 5.6% prev 5.6%

*Canada average hourly wages y/y: 4.43% prev 3.84%

*Canada Ivey purchasing managers index (PMI): 57.3 exp 53.3 prev 51.9

*U.S. non-farm payrolls: 225,000 exp 160,000 prev 147,000

*U.S. unemployment rate: 3.6% exp 3.5% prev 3.5%

*U.S. average hourly earnings m/m: 0.2% exp 0.3%prev 0.1% y/y: 3.1% exp 3% prev 3%

On Tap for next week:

Mon Feb. 10: China CPI y/y: exp 4.9% prev 4.5%

Canada housing starts: exp 210,000 prev 197,300

Tue Feb. 11: UK industrial production y/y: exp -2.2% prev -1.6%

UK GDP Q4 y/y: exp 1% prev 1.1%

Eurozone economic growth forecasts

Wed Feb. 12: Eurozone industrial production: exp 0.1% prev 0.2%

Thur Feb. 13: Bank of Canada Poloz speech

U.S. CPI m/m: exp 0.1% prev 0.2% y/y: exp 2.4% prev 2.3%

U.S. CPI ex food/energy m/m: exp 0.2% prev 0.1% y/y: exp 2.2% prev 2.3%

Fri Feb. 14: China industrial production y/y: prev 6.9%

China retail sales y/y: prev 8%

Germany GDP Q4 y/y: exp 0.7% prev 1%

Eurozone GDPQ4 y/y: exp 1% prev 1%

U.S. retail sales: exp 0.3% prev 0.3% ex autos: exp 0.4% prev 0.7%

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

U.S. industrial production: exp -0.1% prev -0.3%

Technically, USDCAD is neutral / bullish within the lower end of a key resistance zone that has contained rallies over the past 7 months. (1.3280 – 1.3380) USDCAD challenged the 1.3300 level for 4 consecutive days followed by pull-backs towards 1.3263/85. On Friday, the pairing tested the December 2019 high of 1.3316/21 briefly before falling back to 1.3279 (after the stronger than expected Canadian jobs data. The pairing did manage to close the week right near the 1.3300 level.

Topside targets to consider: 1.3320, 1.3350, 1.3380, 1.3435

Downside targets to consider: 1.3260, 1.3190, 1.3150, 1.3080

1 Week Chart

6 Month Chart

1 Year Chart

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

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