Weekly Foreign Exchange Wrap Up for Jan. 23 – 27, 2017

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

A strange week as the CAD completely reversed course yet again after having given up two weeks' worth of gains between Wed. Jan. 18th – Fri. Jan. 20th on warnings by Bank of Canada Governor Poloz. In the absence of key data, the main catalyst was the approval of the TransCanada Keystone XL Pipeline project by President Trump. The CAD shrugged off the "conditions" attached to the project that would better benefit U.S. interests sending USDCAD down nearly 2 cents vs. the USD in the hours that followed the announcement. Positive risk sentiment saw USDCAD fall to 1.3053, just shy of the January low of 1.3018 as the Canadian TSX index came close to its all-time high. U.S. indexes (DJIA, NASDAQ, and S&P) also reached record highs on Wednesday. Despite a 2.5% gain in oil prices on Thursday, USDCAD climbed to 1.3130 and remained above the 1.31 level for most of Friday's session despite weaker than expected U.S. 4th quarter GDP data. Overall, the CAD and the GBP were the best performing currencies this week.

Weekly Open

Low

High

Weekly Close

USDCAD

1.3323

1.3053

1.3336

1.3150

EURCAD

1.4255

1.3975

1.4310

1.4050

GBPCAD

1.6488

1.6415

1.6620

1.6483

JPYCAD

0.01162

0.01179

0.01138

0.01141

AUDCAD

1.0065

0.9853

1.0100

0.9920

Themes for the week:

*Volatility continues – USDCAD retraces last week's move higher – significant fall from 2 week high near 1.3336 down to 1.3053 (near 3 month low)

*Broad-based CAD gains despite Trump's approval of the Keystone XL Pipeline coming with conditions to benefit U.S. interests

*Oil (WTI) stable in narrow $52.25 - $54.05 range

*U.S. GDP Q4: 1.9% (exp 2.2% / prev 3.5%)

*U.S. GDP price index: 2.1% (exp 2.1% / prev 1.4%)

*Positive market sentiment sends equity indexes to record levels: TSX near 15,700, DJIA ~20,100, S&P ~ 2,300, NASDAQ ~5,650

On Tap for Next week:

Tuesday, Jan. 31: Bank of Japan interest rate decision: exp -0.10% / prev -0.10%

Canada GDP(Nov): exp 0.3% / prev -0.3%

Wednesday, Feb. 1: U.S. Fed interest rate decision: exp 0.75% / prev. 0.75%

Thursday, Feb. 2: Bank of England interest rate decision: 0.25% / prev 0.25%

Friday, Feb. 3: U.S. non-farm payrolls: exp 165,000 / prev 156,000

U.S. unemployment rate: exp 4.7% / prev 4.7%

U.S. average hourly earnings: exp 0.2% / prev 0.4%

Overall, the CAD was the best performing currency this week. However, it was the worst performing currency on Friday and closes the day near its weakest level vs. most major currencies. The technical picture is quite messy with several resistance levels taken out last week only to have the support levels give-way in a complete retracement. Since October 2016, the 1.30-1.3050 zone has proven to be an effective support zone for USDCAD. The pairing has tested this zone on 5 - 6 occasions with bounces extending up towards the 1.34 – 1.36 levels. Next week, the CAD will likely again follow general market sentiment in the absence of any Canadian data. A hawkish U.S. Fed statement along with strong employment data should allow the USD to recover some of its monthly losses in a month that historically speaking has been a very good month for the USD.

Topside targets to consider: 1.3250, 1.3388, 1.3460, 1.3510

Downside targets to consider: 1.3100, 1.3085, 1.3050, 1.3020

USDCAD 2017 Forecast (Canadian Banks) as of Dec. 2, 2016

Bank

2017 Q1

2017 Q2

2017 Q3

2017 Q4

HSBC

1.40

1.45

1.45

1.45

TD Canada Trust

1.34

1.34

1.34

1.34

National Bank

1.38

1.40

1.39

1.37

RBC

1.35

1.38

1.38

1.38

CIBC

1.39

1.37

1.36

1.37

BMO

1.3560

1.3680

1.3810

1.3740

Scotia Bank

1.38

1.40

1.38

1.36

2016 CAD Summary

2016 Summary

2016 Open

Low

High

2016 Close

USDCAD

1.3840

1.2460

1.4692

1.3429

EURCAD

1.5040

1.3820

1.6106

1.4134

GBPCAD

2.0471

1.5726

2.0925

1.6550

JPYCAD

0.01149

0.01125

0.01335

0.01150

AUDCAD

1.0085

0.9326

1.0398

0.9691

083e3d7a6b

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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.