​VBCE Weekly Foreign Exchange Wrap Up for June 6 – June 10, 2016

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

The USD began the week under pressure from last Friday's poor employment report. Fed Chairman Yellen's speech was unable to rally the greenback as equity markets gained and oil prices surged to 11 month highs. Fed rate hike probabilities diminished to the point that only a single rate hike is priced in over the next 6 months. A June hike is now priced at less than 2%, while a July hike is just 20%. USDCAD was strongly correlated to oil price moves this week and bottomed near 1.2660 mid-week, just shy of April's 10 month low of 1.2460. The GBP was the worst performing currency this week on Brexit poll results swinging to the "leave" camp and late week risk aversion flows. Equity markets gave up sizeable gains over the 2nd half of the week while oil prices tumbled 5% erasing its weekly gains. The USD recouped much of its losses while closing near session highs on Friday.

On Tap for Next week:

Tuesday June 14th: U.S. core retail sales exp. 0.4% (prev. 0.8%)

Wednesday June 15: U.S. Fed interest rate decision and economic projections

Thursday June 16: U.S. CPI inflation 2.2% (prev. 2.1%)

Friday June 17: Canadian CPI inflation 2.1% (prev. 2.2%)

With the USD staging a nice bounce Thursday and Friday, the trend should continue leading up to Wednesday's Fed announcement. The CAD was unable to hold its post-employment report gains below the 1.2700 level and closed Friday on a weaker tone vs. the USD. Oil gave up the majority its gains and looks poised for further declines next week should risk aversion flows continue. Should the U.S. Fed look at the May jobs report as an anomaly and maintain upbeat economic projections for the U.S. economy, USDCAD could push higher. Top-side targets to consider: 1.2835, 1.2975, 1.3030, 1.3150

At its previous meeting, the Fed had a more hawkish tone which sent the USD broadly higher in May. Should the Fed revert back to a more dovish stance, look for USDCAD to test the downside: 1.2740, 1.2660, 1.2615, 1.2530, 1.2480


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