​VBCE Weekly Foreign Exchange Wrap Up for Oct. 10 – Oct. 14, 2016

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

It was another strange week for the CAD. After closing last Friday on a weak note despite substantial gains in oil and surprisingly strong employment data, fundamentals took over with the CAD immediately gaping higher in Sunday's open. The CAD continued to make gains through Monday's North American holiday session. The trend abruptly changed between Tuesday and early Thursday as USDCAD tested 1.3307 after having tested 1.3314 last Friday. From there, fundamentals took over once again sending the pairing down to 1.3103 earlier today. The CAD was the best performing currency and finishes the week near its strongest point vs. most major currencies. Oil held steady above the $50 level for much of the week while trading close to a 1 year high on Monday. The probability of a U.S. Fed interest rate hike remains unchanged at 64%. Markets sold off after the release of Wednesday's Fed minutes but dovish comments by Fed Chair Yellen on Friday helped markets recover. The market appears to be shifting focus beyond a December rate hike as the USD displayed some weakening signs towards the end of the week. The probability that the Fed will remain on hold after its next rate hike through Sept. 2017 now sits at 45%.

Weekly Open



Weekly Close


























Themes for the week:

*USDCAD gaps lower in holiday trade Monday on market optimism after debate #2 / surge in oil prices (WTI) towards $51.35 (highest since July, 2015 was $51.64 this past June) after Russia agreed to limit oil output – USDCAD drops from 1.3296 down to 1.3138

*USDCAD moves back to 1.3307 after release of U.S. Fed minutes send USD broadly higher / global equity markets lower

*USDCAD falls back to 1.3185 on failed "double-top" at 1.33

*Atlanta Fed revises U.S. 3rd quarter growth from 2.1% down to 1.9% (was 3.6% in Aug)

*U.S. core retail sales: 0.5% (exp. 0.4% / prev. -0.2%)

*U.S. core producer price index m/m: 0.2% (exp. 0.1% / prev. 0.1%)

*North American markets erase early losses to finish positive along with most major global indices on Friday after Fed Yellen's dovish comments

*U.S. Fed funds probability for Dec. rate hike unchanged near 64%

On Tap for Next week:

Tuesday, Oct. 18: U.S. CPI m/m: exp. 0.2% / prev. 0.3% y/y: exp. 2.3% / prev. 2.3%

Wednesday, Oct. 19: Bank of Canada interest rate decision exp. unchanged at 0.50%

Thursday, Oct. 20: European Central Bank interest rate decision exp. 0%

Friday, Oct. 21: Canada retail sales: exp. 0.3% / prev. -0.1%

Canada core consumer price index m/m: exp. 0.2% / prev. 0% y/y: 1.8% / prev. 1.8%

The CAD closed last week in an extremely weak position against most currencies. Despite some extremely choppy price action, the CAD managed to overcome the bulk of last week's losses and looks poised to make further gains next week. Oil remains stable above the $50 level, while recent Canadian data has surprised to the upside. The Bank of Canada makes its interest rate policy announcement on Wednesday. There is a good chance that the statement will be less dovish than the September statement which should give the CAD another boost. Inflation data has been on the softer side as of late but data out next Friday is expected to show an increase. Higher energy prices and economic growth over the past two months along with a weaker CAD should push inflation levels higher. Technically, the failure to sustain trade above the 1.33 level should shift focus towards the 1.30 and 1.29 levels.

Topside targets to consider: 1.3180, 1.3220, 1.3250, 1.3300

Downside targets to consider: 1.3100, 1.3067, 1.3000, 1.2950

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


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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.