VBCE Foreign Exchange Wrap Up for Feb. 10 – 14, 2020

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

The CAD was mixed this week as markets continued to shrug off global growth fears from the coronavirus induced economic slow-down in China. The CAD actually weakened during Monday's session with USDCAD breaking the previous week's high of 1.3321 (also the December 2019 high) but stalling at 1.3328 – which also happened to be the November 2019 high as well. Oil prices dipped below the $50 level again towards 13- month lows but the trend reversed over the balance of the week with subsequent 6% climb towards a 2-week high. USDCAD moved lower as well towards the February low @ 1.3235. Subsequent rallies higher on Thursday and Friday both stalled near the broken support level since turned resistance @ 1.3270. The CAD also enjoyed gains against the EUR which broke below key support near 1.4420/50 and declined to 1.4343 – near a 3-year low. The GBP was the best performing currency this week on the overall positive risk sentiment and a change to the PM's economics team seen as fiscally stimulative / positive for the UK economy. The JPY broadly weakened as risk aversion flows continued to reverse from the safe-haven currencies (USD, JPY, and CHF) into the growth currencies (CAD, AUD, and NZD).

Weekly Open

Low

High

Weekly Close

USDCAD

1.3304

1.3235

1.3328

1.3251

EURCAD

1.4565

1.4343

1.4584

1.4351

GBPCAD

1.7151

1.7112

1.7324

1.7288

JPYCAD

0.01213

0.01203

0.01215

0.01206

AUDCAD

0.8869

0.8862

0.8955

0.8895

Key Events:

*USDCAD declines towards 2 week lows after re-visiting the Nov. 2019 high

*EURCAD falls towards 3 year lows

*GBPCAD climbs from 1 week low towards 2 week high

*JPYCAD falls from 1 week high towards a 3 week low

*AUDCAD continues to hold near 10 year lows

*Crude oil (WTI) rebounds 6% from 13 month low (range $49.58 - $52.55)

*USD index (DXY) climbs towards 3 year high (range 98.60 – 99.16)

*U.S. 10 yr Treasuries hold near 4 year lows: range 1.54% to 1.64%

*China CPI y/y: 5.4% exp 4.9% prev 4.5%

*Canada housing starts: 213,200 exp 210,000 prev 195,900

*UK industrial production y/y: -1.8% exp -0.8% prev -2.5%

*UK GDP Q4 y/y: 1.1% exp 0.8% prev 1.2%

*U.S. CPI m/m: 0.1% exp 0.2% prev 0.2% y/y: 2.5% exp 2.4% prev 2.3%

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

*Germany GDP Q4 y/y: 0.3% exp 0.2% prev 1.1%

*Eurozone GDPQ4 y/y: 0.9% exp 1% prev 1.2%

*U.S. retail sales: 0.3% exp 0.3% prev 0.2% ex autos: 0.3% exp 0.3% prev 0.6%

*U.S. retail sales control group: 0% exp 0.3% prev 0.2%

*U.S. industrial production: -0.3% exp -0.2% prev -0.4%

On Tap for next week:

Mon Feb. 17: Japan industrial production y/y: -3.1% exp -3% prev -3%

Family Day in Canada / President's Day in U.S.

Tue Feb. 18: UK unemployment rate: 3.8% exp 3.8% prev 3.8%

UK avg earnings including bonus: 2.9% exp 3% prev 3.2%

Eurozone ZEW survey – economic sentiment: 10.4 exp 30 prev 25.6

Germany ZEW survey – economic sentiment: 8.7 exp 21.5 prev 26.7

Japan exports y/y: exp -6.9% prev -6.3%

Japan machinery orders y/y: exp -1.3% prev 5.3%

Wed Feb 19: Australia wage price index qoq Q4: exp 0.5% prev 0.5%

UK CPI y/y: exp 1.6% prev 1.3%

Canada CPI m/m: exp 0.2% prev 0% y/y: exp 2.3% prev 2.2%

Bank of Canada CPI core m/m: exp 0.4% prev -0.4% y/y: exp 1.8% prev 1.7%

Thur Feb. 20: Australia employment change: exp 10,000 prev 28,900

Australia unemployment rate: exp 5.2% prev 5.1%

China central bank interest rate decision: prev 4.15%

UK retail sales y/y: exp 0.7% prev 0.9%

Canada ADP employment change: exp 71,800 prev 46,200

Fri Feb. 21: Eurozone CPI core y/y: exp 1.1% prev 1.1%

Canada retail sales m/m: exp 0.1% prev 0.9% ex autos: exp 0.4% prev 0.2%

U.S. Markit manufacturing PMI: exp 51.5 prev 51.9

Technically, USDCAD is neutral. The pairing had been trending higher from Jan. 7th to Feb 3rd before stalling near 1.3300 the previous week. The pairing broke the previous week's high of 1.3321 (also the Dec 2019 high) on Monday but could not break beyond the November 2019 high of 1.3328. The trend subsequently reversed breaking below minor support at 1.3265/70 to a low of 1.3235 on Wednesday. This February low was revisited again on Friday. A move below 1.3235 opens the door for further downside towards the post-Bank of Canada rate decision move from Jan. 22 @ 1.3150. A sustained move above the 1.3328 level would next target the October 2019 high near 1.3350.

Topside targets to consider: 1.3270, 1.3320, 1.3350, 1.3380

Downside targets to consider: 1.3235, 1.3190, 1.3150, 1.3080

1 Week Chart

6 Month Chart

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