​VBCE Weekly Foreign Exchange Wrap Up for June 13 – June 17, 2016

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


The USD and the JPY enjoyed solid gains this week before correcting lower Thursday and Friday on profit-taking flows. Global equity markets saw steady declines as Brexit polls continue to indicate a tight race. The GBPCAD rate neared an 18 month low as the probability of the U.K. leaving the European Union becomes a possible reality. The market sell-off also affected oil prices which saw steady declines sending USDCAD up towards a 2 week high near 1.3100. The JPY gained as much as 6% against the CAD nearing its highest level in 4 years. The U.S. Fed kept rates unchanged at 0.50% while indicating the potential for 4 more rate hikes by the end of 2017. The Bank of Japan surprised the markets by refraining from implementing additional economic stimulus measures despite low inflation readings and an already "strong" JPY. This caused a large sell-off in the Japan stock index and sent the JPY soaring 3% within hours. Despite a 5% rally in oil prices on Friday, the CAD still underperformed overall on the week.

Weekly Open

Low

High

Weekly Close

USDCAD

1.2780

1.2753

1.3086

1.2890

EURCAD

1.4380

1.4353

1.4629

1.4540

GBPCAD

1.8218

1.8050

1.8519

1.8500

JPYCAD

0.01195

0.01195

0.01260

0.01238

AUDCAD

0.9426

0.9418

0.9580

0.9540

Themes for the week:

*Broad-based USD and JPY strength on risk aversion flows surrounding June 23rd Brexit vote

*less dovish than expected U.S. Fed statement / economic projections

*Bank of Japan refrains from additional stimulus measures / keeps key rate at -0.10% / JPY soars 3%+ across the board (gains 6% from weekly open to test 4 year high vs. CAD

*Oil prices decline 12% from last week's 11 month high of $51.64 before Friday's 5% rebound to $48.26

*Brexit poll: Too close to call / GBPCAD approaches 18 month low (1.8050) before Friday rally to 1.85

*U.S. inflation ticks higher - Core CPI @ 2.2% y/y (prev. 2.1%)

* Canadian inflation declines – Core CPI @ 2.1% y/y (prev. 2.2%)

*Late week market recovery sees JPY & USD pare gains

On Tap for Next week:

Wednesday June 22nd: Canada core retail sales exp. 0.6% (prev. -0.3%)

Wednesday June 22: crude oil inventories

Thursday June 23: U.S. durable goods orders exp. 0.2% (prev. 0.5%)

Thursday June 23: UK Brexit vote

Although the economic calendar is light, market volatility is still in the forefront ahead of Thursday's Brexit vote. Risk aversions flows will likely continue putting a bid on the USD and JPY. Oil prices enjoyed a nice 5% rally on Friday but remain well below last week's 11 month high of $51.64. Given the Rig Count has increased for the 3rd consecutive week along with market uncertainties ahead of the Brexit vote, oil prices should see further downside pressure. Should risk aversion flows continue, USDCAD should move higher: Top-side targets to consider: 1.2975, 1.3086, 1.3150

Should global markets stage a rally, USDCAD should test the lower bounds: Downside targets to consider: 1.2830, 1.2740, 1.2660

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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.