VBCE Foreign Exchange Wrap Up for Feb. 17 – 21, 2020

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

The CAD was the top performer this week on a combination of positive economic data, higher oil prices, and generally positive risk sentiment in the markets. The USD declined to a fresh February / 3 week low while the EUR fell towards a 3 year low. The JPY was the worst performing currency falling to 14 month lows as economic data out of Japan has been poor. Also, the carry trade continues to hurt the JPY as interest rates are expected to remain at 0% for the immediate future. USDCAD initially dropped to 1.3225 before climbing to 1.3278 on Tuesday on the back of weaker Canadian manufacturing data / softness in oil and equity markets. The move higher was short-lived and the pairing declined to 1.3215 on Wednesday after Canadian CPI (inflation) increased more than expected, oil prices rallied 3%, and equity markets recovered Tuesday's losses. USDCAD rallied higher on Thursday on the back of broad-based USD strength that saw the USD index rise to the highest level in 3 years. The rise stalled near the recent resistance zone (1.3265 – 1.3280) that has contained numerous USDCAD rallies since Feb 12th. The 1.3268 level was tested yet again during Friday's Asian and London sessions before an abrupt change in trend. The USD broadly weakened taking USDCAD down below recent support levels (1.3235, 1.3225, 1.3215) to a fresh 3 week low of 1.3202. Canadian retail sales were better than expected factoring in positive revisions to prior data while oil prices finished the week near a 1 month high.

Weekly Open

Low

High

Weekly Close

USDCAD

1.3255

1.3202

1.3278

1.3220

EURCAD

1.4353

1.4265

1.4376

1.4344

GBPCAD

1.7276

1.7018

1.7300

1.7134

JPYCAD

0.01206

0.01180

0.01210

0.01185

AUDCAD

0.8911

0.8728

0.8913

0.8760

Key Events:

*USDCAD falls towards 3 week lows

*EURCAD falls towards 3 year lows

*GBPCAD falls towards 3 month lows

*JPYCAD falls towards a 14 month low

*AUDCAD falls to 10 year lows

*Crude oil (WTI) climbs 7% towards 1 month high (range $51.17 - $54.63)

*USD index DXY climbs to 3 yr high and then falls to 1 week low (range 99.04 – 99.91)

*U.S. 10 yr Treasuries fall towards historical lows: range 1.44% to 1.64%

*Japan GDP Q4 annualized: -6.3% exp -3.7% prev 1.8%

*Japan industrial production y/y: -3.1% exp -3% prev -3%

*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: -2.6% exp -6.9% prev -6.3%

*Japan machinery orders y/y: -3.5% exp -1.3% prev 5.3%

*Australia wage price index qoq Q4: 0.5% exp 0.5% prev 0.5%

*UK CPI y/y: 1.8% exp 1.6% prev 1.3%

*Canada CPI m/m: 0.3% exp 0.2% prev 0% y/y: 2.4% exp 2.3% prev 2.2%

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

*Australia employment change: 13,500 exp 10,000 prev 28,700

*Australia unemployment rate: 5.3% exp 5.2% prev 5.1%

*China central bank interest rate decision: 4.05% prev 4.15%

*UK retail sales y/y: 0.8% exp 0.7% prev 0.9%

*Canada ADP employment change: 25,900 exp 71,800 prev 46,200

*Germany Markit mfg. PMI: 47.8 exp 44.8 prev 45.3

*Eurozone Markit mfg. PMI: 49.1 exp 47.5 prev 47.9

*UK Markit mfg. PMI: 51.9 exp 49.7 prev 50

*Eurozone CPI core y/y: 1.1% exp 1.1% prev 1.1%

*Canada retail sales m/m: 0% exp 0.1% prev 1.1% ex autos: 0.5% exp 0.4% prev 0.5%

*U.S. Markit manufacturing PMI: 50.8 exp 51.5 prev 51.9

On Tap for next week:

Mon Feb. 24: Canada wholesale sales:0.9% exp 0.5% prev -1.1%

Tue Feb. 25: Germany GDP Q4 y/y: 0.3% exp 0.3% prev 0.3%

Wed Feb. 26: U.S. new home sales: exp 708,000 prev 694,000

Thur Feb 27: U.S. durable goods orders: exp -1.5% prev 2.4%

U.S. GDP Q4 annualized: exp 2.1% prev 2.1%

Japan Tokyo CPI ex fresh food y/y: exp 0.6% prev 0.7%

Japan unemployment rate: exp 2.2% prev 2.2%

Japan retail trade y/y: exp -1.1% prev -2.6%

Japan industrial production y/y: exp -9.5% prev -3.1%

Fri Feb 28: Germany unemployment rate: exp 5% prev 5%

Germany CPI y/y harmonized: exp 1.5% prev 1.6%

U.S. core personal consumption expenditure price index y/y: exp 1.7% prev 1.6%

Canada GDP Q4 qoq: exp 0.2% prev 1.3%

Technically, USDCAD is bearish. The pairing had been non-trending since Feb. 12th within a 1.3235 – 1.3278 range before breaking lower with a series of lower "lows" on Feb. 19th, 20th, and 21st. USDCAD failed to bounce back to the broken support level (1.3235) and finished the week near the February low. Look for further downside towards the post-Bank of Canada rate decision move from Jan. 22 @ 1.3150. A move back above 1.3270 should open the door for a re-test of the 1.33 – 1.3328 area.

Topside targets to consider: 1.3235, 1.3270, 1.3320, 1.3350, 1.3380

Downside targets to consider: 1.3202, 1.3190, 1.3150, 1.3080, 1.3030

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 Grou

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