VBCE Weekly Foreign Exchange Wrap Up for March 6 - 10, 2017

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

The USD continued higher vs most currencies before easing back during Friday's session. U.S. employment data beat expectations although the official payroll numbers fell short of Wednesday's ADP surprise beat. Overall, the data supports an interest rate hike at next Wednesday's 11:00am Fed announcement. The CAD broadly weakened before recovering Friday after another strong employment report. Canada added more than 100,000 full time jobs in February, the most in any given month since 2006. USDCAD hit 1.3535 on Thursday, the highest level since a brief stint near 1.3600 on Dec. 28^th before falling to 1.3421 after the jobs report. Oil had one of its worst weeks in a year losing 10% to $48.34 after having held near $52-$54 for the past 3 months. Despite rising U.S. yields, the EUR rebounded to trade near 1 month highs vs. USD and 4 month highs vs. CAD on an optimistic / less dovish European Central Bank.

Themes for the week:

*notable broad-based USD and EUR strength

*USDCAD tests 2017 high @ 1.3535 (52 week range: 1.2460 – 1.3600)

*Oil (WTI) sinks from $53.77 to $48.34 – down 10% to a 3 month low

*Canada trade balance: $0.81 billion (exp $0.70 billion / prev $0.45 billion)

*U.S. trade balance: -$48.5 billion (exp -$48.5 billion / prev -$44.30 billion)

*U.S. ADP employment change: 298k (exp 190k / prev 261k)

*European Central Bank interest rate decision: unchanged @ 0% - "less dovish rhetoric noted"

*Canada net employment change: 15.3k (exp 2.5k / prev 48.3k)

*Canada full time employment: 105.1k (prev 15.8k)

*Canada unemployment rate: 6.6% (exp 6.8% / prev 6.8%)

*U.S. non-farm payrolls: 235k (exp 190k / prev 238k)

*U.S. unemployment rate: 4.7% (exp 4.7% / prev 4.8%)

*U.S. Fed funds futures probability of March 15^th interest rate hike = 91%

On Tap for Next week:

Wed. Mar. 15: U.S. CPI m/m: exp 0.2% / prev 0.3% y/y: exp 2.2% / prev 2.3%

U.S. retail sales: exp 0.1% / prev 0.4%

U.S. Fed interest rate decision: exp +0.25% to 1% / prev 0.75%

U.S. economic projections / Yellen speech

Technically, the bullish USD trend is strong having gained momentum on the sustained break above the 1.3200 level. There was a correction on Friday driven by the strong Canadian job gains although tumbling oil prices limited the move lower. Support at 1.3480 has now become resistance with USDCAD unable to break back above this level into the weekly close. Next week, USDCAD will be driven by several key data releases Wednesday morning and the 11:00am U.S. Fed statement, economic projections, and speech by Fed Chairman Yellen. USDCAD will likely consolidate between 1.3375 and 1.3535 before testing the 1.3600 level (Dec. 2016 high).

Topside targets to consider: 1.3480, 1.3535, 1.3600

Downside targets to consider: 1.3420, 1.3375, 1.3320, 1.3213

2016 CAD Summary