VBCE Weekly Foreign Exchange Wrap Up for Oct. 16 - 20, 2017

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

Although, USDCAD opened the week near the 1.2460 level and look poised to move lower after closing near session lows last Friday, the pairing initially trended higher testing the 1.2590 level on Tuesday – just shy of the Oct. 6^th high of 1.2600. The pairing then turned lower to test the 1.2450 level on Wednesday and Thursday before climbing to 1.2630 on Friday – the highest since Aug. 31. Canadian inflation (CPI) data out Friday suggests that inflation is rising albeit at a slower pace than expected while retail sales for August surprisingly declined by 0.3% - the market was expecting an increase of 0.5% over the July data.

Themes for the week:

*The EUR, USD, and GBP outperformed while the AUD, CAD, and JPY lagged

*USDCAD near 7 week highs, EURCAD near 7 week highs, GBPCAD near 3 week highs, AUDCAD near 4 week highs while JPYCAD holds near 2 year lows

*WTI crude oil flat in a $50.88 - $52.30 range – holds near 5 month highs

*UK CPI y/y: 3.0% (exp 3.0% / prev 2.9%)

*Eurozone CPI y/y: 1.5% (exp 1.5% / prev 1.5%)

*U.S. industrial production: 0.3% (exp 0.3% / prev -0.7%)

*Canada manufacturing sales: 1.6% (exp -0.1% / prev -2.6%)

*Australia employment change: 19,800 (exp 15,000 / prev 53,000)

*China GDP (Q3): 6.8% (exp 6.8% / prev 6.9%)

*UK retail sales m/m: -0.8% (exp -0.1% / prev 0.9%) y/y: 1.2% (exp 2.1% / prev 2.3%)

*Canada retail sales: -0.3% (exp 0.5% / prev 0.4%) Core: -0.7% (exp 0.3% / prev 0.2%)

*Canada CPI m/m: 0.2% (exp 0.3% / prev 0.1%) y/y: 1.6% (exp 1.6% / prev 1.4%)

*core CPI common: 1.5% (prev 1.5%) trim: 1.5% (prev 1.4%) median 1.8% (prev 1.7%)

*Fed December meeting – rate hike probability edges higher to 91.3% from 87.8% week prior

On Tap for Next week:

Wed Oct 25th: Bank of Canada interest rate decision: exp unchanged at 1.0%

Australia CPI (Q3): exp 0.4% / prev 0.2%

UK GDP (Q3 y/y): exp 1.4% / prev 1.5%

Thurs Oct 26: ECB interest rate decision: exp unchanged @ 0%

Fri Oct. 27: U.S. GDP (Q3): exp 2.6% / prev 3.1%

Technically, USDCAD is bullish. After several failures to break beyond its recent 1.2450 – 1.2550 range over the past few weeks, USDCAD saw sustained trade above the 1.2600 level on Friday. The pairing also closed the week above the 1.26 level opening the door for further top-side tests dating back to the late August highs between 1.2660 and 1.2780. The market is no longer pricing in an interest rate hike at Wednesday's 7:00am Bank of Canada interest rate policy announcement (Oct. 25^th) but the statement will be scrutinized for any possible indication of a December rate hike. Market pricing is currently around 50% for a hike in December. The other key item is preliminary data for U.S. 3^rd quarter GDP. After a 3.1% reading for Q2, the market is expecting Q3 to be a bit softer at 2.6%.

Topside targets to consider: 1.2660, 1.2700, 1.2780, 1.2860