VBCE Weekly Foreign Exchange Wrap Up for May 1-5, 2017

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

USDCAD opened the week near 1.3655 and broke above the 1.37 level as oil prices came under immense pressure falling more than 11% before staging a dramatic 6%+ rally during Friday's session. Despite the significant fall in oil, USDCAD only managed to gain about 1 cent above the previous week high of 1.3697. The U.S. Fed held rates at 1% and remained optimistic on the direction of the economy. Although admitting that the first quarter had been sluggish, they emphasized that the job market continues to remain strong. The probability of a June interest rate hike moved up to about 90%. The USD came under selling pressure after the release of Friday's jobs data. Wage inflation in the U.S. was softer than expected while the unemployment rate in Canada reached a 9 year low. After rallying to 1.3794 – a new 14 month high before the jobs data, USDCAD moved lower to close the week near 1.3650. Friday also saw record highs for EURCAD (a 14 month high of 1.5152) and GBPCAD (11 month high of 1.7854).

Themes for the week:

*USDCAD technical correction – 10 straight days of gains for USDCAD – gains to 1.3794 (last week's high was 1.3697) before plunging to 1.3648 (near weekly low)

*Oil prices plunge 11% from $49.29 to $43.79 before rebounding 6% to $46.65

*U.S. Fed interest rate announcement: unchanged at 1.00% "hawkish hold" drives June rate hike probability up towards 90%

*Canada trade balance: -$0.14 billion (exp -$0.80 billion/ prev -$1.08 billion)

*U.S. trade balance: -$43.70 billion (exp -$44.50 billion / prev -$43.80 billion)

*Canada net employment change: 3,200 (exp 10,000 / prev 19,400)

*Canada unemployment rate: 6.5% (exp 6.7% / prev 6.7%)

*U.S. non-farm payrolls: 211,000 (exp 185,000 / prev 79,000)

*U.S. unemployment rate: 4.4% (exp 4.6% / prev 4.5%)

*U.S. average hourly earnings: 0.3% (exp 0.3% / prev 0.1%)

On Tap for Next week:

Thur. May 11: Bank of England interest rate decision: exp 0.25% / prev 0.25%

Fri May 12: U.S. CPI m/m: exp 0.2% / prev -0.3% y/y: exp 2.3% / prev 2.4%

Core CPI m/m: exp 0.2% / prev -0.1% y/y: exp 2.0% / prev 2.0%

U.S. retail sales: exp 0.6% / prev -0.2% core: exp 0.5% / prev 0%

The technical picture for USDCAD is a bit confusing as a series of 10 successive gains for the USD came to an end on Friday. The pairing had initially made gains to a new 14 month high of 1.3794 but closed below the 1.3700 on Friday right near the weekly support level of 1.3650. With the absence of any key data until Friday, May 12th, USDCAD will most likely retain a more neutral bias and consolidate around the 1.36 – 1.37 levels.

Topside targets to consider: 1.3680, 1.3700, 1.3750, 1.3790

Downside targets to consider: 1.3620, 1.3530, 1.3410, 1.3315