VBCE Weekly Foreign Exchange Wrap Up for November 14-18, 2016

VBCE Weekly Foreign Exchange Wrap Up for Nov. 14 – Nov. 18, 2016

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

The CAD opened this week in a rather weak position as oil prices dropped towards a 3 month low near $42 while USDCAD tested a 9 month high at 1.3588. The weakness was short-lived as oil prices jumped nearly 10% between Monday and Thursday sending the CAD to a 7 month high vs the EUR and a 5 month high vs. the JPY. USDCAD dropped to 1.3400 before climbing to 1.3566 and eventually settling the week near 1.3500. The USD continued to make gains vs. most major currencies as Fed Yellen's hawkish testimony overshadowed some weaker U.S. inflation data sending December rate hike probabilities to nearly 100%.

Weekly Open

Low

High

Weekly Close

USDCAD

1.3540

1.3400

1.3588

1.3502

EURCAD

1.4698

1.4287

1.4698

1.4287

GBPCAD

1.7058

1.6642

1.7058

1.6658

JPYCAD

0.01269

0.01217

0.01271

0.01217

AUDCAD

1.0215

0.9909

1.0254

0.9909

Themes for the week:

*USD near 1 year high vs. EUR, 6 month high vs. JPY, 9 month high vs. CAD

*CAD near 7 month high vs. EUR, 5 month high vs. JPY, 2 month high vs. AUD

*Oil gains nearly 10% on OPEC production cut optimism (from Monday low of $42.58 to Thursday high of $46.55

*Canadian manufacturing sales: 0.3% (exp. 0.1% / prev. 0.9%)

*Canada core consumer price index m/m: 0.2% (exp. 0.2% / prev. 0.2%)

*U.S. core retail sales: 0.8% (exp. 0.5% / prev. 0.7%)

*U.S. core producer price index m/m: 0% (exp. 0.3% / prev. 0.3%)

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

*U.S. industrial production: 0% (exp. 0.2% / prev. -0.2%)

*EIA crude oil inventories: +5.274 million barrels (exp. 1.48m / prev. 2.432m)

*Atlanta Fed revises U.S. GDP Q4 from 3.3% to 3.6%

*Fed Yellen – U.S. can raise interest rates "relatively soon"

*U.S. Fed funds probability for Dec. rate hike now at 95.4%

On Tap for Next week:

Tuesday, Nov. 22: Canada retail sales: exp. 0.6% / prev. -0.1%

Wednesday, Nov. 23: U.S. core durable goods orders: exp. 0.2% / prev. 0.1%

Thursday, Nov. 24: U.S. Thanksgiving – U.S. markets closed

Friday, Nov. 25: Black Friday (U.S. markets open / semi-holiday mode)

The CAD was the best performing currency this week and looks poised to make additional gains next week with its strong close today although it will most likely trade sideways vs. the USD. Oil prices look to be well supported while Canadian retail sales data is expected to see a bounce-back. The USD continues to impress as well having made significant gains this week vs. most currencies. Markets may decide to take profits next Wednesday ahead of the U.S. long weekend. Since the presidential election, there has been the unusual combination of a stronger USD, stronger global equity markets, and increased U.S. Fed rate hike pressures. Fundamentally, these conditions can not continue indefinitely. Sustained USD strength will erode corporate earnings, affect net exports and hiring levels, and affect U.S. economic growth and data alike. Inflationary pressures may subside and with the U.S. Fed emphasizing "gradual" interest rate hikes, further USD strength may be limited. With a December interest rate hike nearing 100% certainty, markets will now look towards the Fed's expectations for 2017.

Topside targets to consider: 1.3566, 1.3588, 1.3610, 1.3650

Downside targets to consider: 1.3465, 1.3400, 1.3350, 1.3265

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.