​VBCE Weekly Foreign Exchange Wrap Up for June 5 – June 9, 2017

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

USDCAD spent much of the week between 1.3430 and 1.3520. After testing last week's lows near 1.3425 on Wednesday, a plunge in oil prices sent USDCAD back up above the 1.3500 level where it remained until Friday. A strong Canadian jobs report saw USDCAD fall to 1.3425 and close the week at 1.3463. The GBP was the worst performing currency last week as Theresa May's Conservatives failed to win a majority government. The markets had been pricing in a majority win and the GBP plunged accordingly towards 2 month lows.

Themes for the week:

*AUD and CAD lead – best performing currencies this week

*USDCAD closes week below key trendline (1.3480)

*surprise build in U.S. oil inventories: +3 million barrels (exp draw of 3 million) WTI crude drops 6.5% from $48.39 to $45.24 before gaining back 2% to $46.15

*Australia (RBA) interest rate decision: 1.5% (exp 1.5%/ prev 1.5%)

*European Central Bank (ECB) interest rate decision: 0% (exp 0% / prev 0%)

*U.K. election: seats / change CON 318 (-13) LAB 262 (+30) Conservatives fail to achieve 326 seat majority / GBPCAD tumbles 4.5 cents on the week

*Canada net employment change: 54,500 (exp 15,000 / prev 3,200)

*Canada unemployment rate: 6.6% (exp 6.6% / prev 6.5%)

*Canada full time jobs: 77,000 (prev -31,200)

*U.S. June 14^th rate hike probability rises to 99.6%

*U.S. 10 year yield rebound from 7 month lows to 2.20% (from 2.14% - 2017 high was 2.62% in March)

On Tap for Next week:

Tue. June 13: U.S. producer price index m/m exp 0.1% / prev 0.5% y/y 2.3% / prev 2.5%

Wed. June 14: U.S. retail sales: exp 0.1% / prev 0.4%

U.S. CPI m/m: exp 0.1% / prev 0.2% y/y: exp 2.0% / prev 2.2%

U.S. Fed interest rate decision: + 0.25 (1.25%) / prev 1.00%

Technically, USDCAD held a neutral bias for most of the week although the pairing turned slightly bearish after the strong Canadian employment data on Friday. The pairing broke below a key trendline at the 1.3480 level and was never able to regain that level eventually closing the week at 1.3463. However, the 1.3425 level held up again on Friday – a level that has contained downside moves on three occasions now over the past two weeks. Next week, U.S. inflation and retail sales data are expected to remain relatively soft. The market fully expects the U.S. Fed to raise its key rate. They will also release a new set of economic projections. Given the recent slide in long-term yields and soft U.S. data, a downgrade of future rate hike expectations could lead to broad USD weakness. Still, a sustained break below 1.3425 or above 1.3547 will be required to generate a shift in trend.

Topside targets to consider: 1.3480, 1.3520, 1.3547, 1.3575