VBCE Weekly Foreign Exchange Wrap Up for Dec 11 - 15, 2017

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

The AUD was the best performing currency this week while the GBP lagged behind. The CAD was mixed gaining vs the EUR and the GBP while losing ground to the JPY and AUD. USDCAD was virtually unchanged this week although Thursday's session was extremely volatile with hawkish comments from Bank of Canada's Poloz sending USDCAD from 1.2860 down to 1.2713. The move lower was short-lived with USDCAD rebounding up to weekly highs Friday morning. The U.S. Fed raised interest rates as was widely expected and indicated another 3 rate hikes to follow in 2018. The USD broadly weakened after the announcement and the economic projections were released although the weakness was limited with the USD recovering during Friday's session. The EUR and the GBP were the worst performing currencies as interest rates were left unchanged by the ECB and the BOE.

Themes for the week:

*The AUD & JPY lead while the EUR & GBP lag

*USDCAD holds near 5 month highs, EURCAD near 22 month highs, GBPCAD near 6 month highs, JPYCAD and AUDCAD both near 3 month highs

*WTI crude oil unchanged near 2.5 year highs ($56.10 - $58.50 range)

*UK CPI y/y: 3.1% (exp 3.0% / prev 3.0%)

*UK unemployment rate: 4.3% (exp 4.2% / prev 4.3%)

*U.S. core CPI m/m: 0.1% (exp 0.2% / prev 0.2%) y/y: 1.7% (exp 1.8% / prev 1.8%)

*U.S. Fed interest rate decision: 1.50% (exp 1.50% / prev 1.25%)

*Australia net employment change: 61,600 (exp 19,200 / prev 7,800)

*UK retail sales: 1.1% (exp 0.4% / prev 0.5%)

*Bank of England interest rate decision: 0.50% (exp 0.50% / prev 0.50%)

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

*U.S. core retail sales: 1.0% (exp 0.7% / prev 0.4%)

*Bank of Canada Poloz hawkish comments – sends CAD sharply higher

*Canada manufacturing sales: -0.4% (exp 0.8% / prev 0.4%)

*U.S. industrial production: 0.2% (exp 0.2% / prev 1.2%)

On Tap for Next week:

Thur Dec 21: Bank of Japan interest rate: exp -0.1% / prev -0.1%)

U.S. GDP (Q3): exp 3.3% / prev 3.3%

Canada CPI m/m: exp 0.2% / prev 0.1% y/y: exp 2.0% / prev 1.4%

Canada retail sales: exp 0.3% / prev 0.1%

Fri Dec 22: Canada GDP (Oct.): exp 0.2% / prev 0.2%

Technically, USDCAD is neutral. After several tests in the upper 1.28 range, USDCAD dropped to 1.2713 on hawkish comments from Bank of Canada Governor Thursday only to later recover and post a new weekly high of 1.2893 on Friday. The pairing continues to struggle to attain the 1.2900 level. A sustained break below 1.2620 or above 1.2920 will be required for a change in trend.

Topside targets to consider: 1.2880, 1.2908, 1.2916, 1.2970