VBCE Weekly Foreign Exchange Wrap Up for Jan. 15 – Jan. 19, 2018

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

The CAD was the worst performing currency this past week despite an interest rate hike by the Bank of Canada on Wednesday. USDCAD initially climbed from 1.24 up to 1.2520 ahead of the announcement before falling to 1.2370 once the rate hike was announced. A dovish tone to the BOC statement sent USDCAD back up to 1.2500 before a more neutral / less dovish press conference by the BOC Governor strengthened the CAD sending USDCAD back down to 1.2380. The pairing climbed to 1.2480 on Thursday before falling back to 1.2400 in early Friday trade on general concerns over a possible U.S. government shutdown. The trend abruptly changed during Friday's North American session sending USDCAD back up to test the 1.2500 level.

Themes for the week:

*The AUD & GBP lead while the CAD lags

*USDCAD holds near 3 month lows, EURCAD, GBPCAD, and JPYCAD near 1 month highs, and AUDCAD near 4 month highs

*WTI crude oil holds near 3 year highs in a $62.93 - $64.77 range

*EUR CPI y/y: 1.4% (exp 1.4% / prev 1.4%)

*Bank of Canada interest rate: 1.25% (exp 1.25% / prev 1.00%)

*Australia employment change: 34,700 (exp 9,000 / prev 63,600)

*China retail sales y/y: 9.4% (exp 10.1% / prev 10.2%)

*China GDP Q4 y/y: 6.8% (exp 6.7% / prev 6.8%)

*U.K. retail sales m/m: -1.5% (exp -0.6% / prev 1.0%) y/y: 1.4% (exp 3.0% / prev 1.5%)

*Canada manufacturing shipments: 3.4% (exp 2.0% / prev -0.4%)

On Tap for Next week:

Tue Jan 23: Bank of Japan interest rate: -0.1% (exp -0.1% / prev -0.1%)

Thur Jan 25: ECB interest rate decision: exp 0% / prev 0%

Canada retail sales: exp -0.1% / prev 1.5%

Japan CPI y/y: exp 0.3% / prev 0.6%

Fri Jan 26: UK GDP Q4 y/y: exp 1.5% / prev 1.7%

U.S. Q4 GDP annualized: exp 3.0% / prev 3.2%

Canada CPI y/y: exp 2.1% / prev 2.1%

Technically, USDCAD is neutral. After the last failed test of 1.2900 on Dec. 19^th, the USDCAD downtrend stalled at 1.2355 on Jan. 5^th. After the pairing corrected higher to 1.2590 during the week of Jan 8-12, the downtrend resumed and the 1.2400 level was broken this week. However, trade below the 1.2400 level could not be sustained and USDCAD rallied back to test the 1.25 level. A sustained break below 1.2400 or above 1.2500 will be required for a change in trend.

Topside targets to consider: 1.2495, 1.2550, 1.2590, 1.2625