VBCE Weekly Foreign Exchange Wrap Up for Jan. 22 – Jan. 26, 2018

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

The USD was the worst performing currency this past week. The initial sell-off came on headlines from the U.S. Treasury Secretary Mnuchin suggesting the U.S. wanted a weaker currency. There was a quick reversal on Thursday as President Trump stated that the markets took Mnuchin's comments out of context and that "the dollar is going to get stronger and stronger, and ultimately I want to see a strong dollar." After trading to a 4 month low at 1.2282 Thursday morning, USDCAD rallied to 1.2390 on Trump's comments. The USD strength witnessed during Thursday's session did not last and the USD gains were nearly completed erased during Friday's session as U.S. 4^th quarter GDP (initial reading) missed estimates. Overall, the GBP was the top performer on strong economic reports and technical buying that saw the GBPUSD reach the highest levels since the Brexit vote in June of 2016.

Themes for the week:

*USD broadly weakens – USD index holds near 3 year lows despite 10 year U.S. yields rising to 4 year highs

*USDCAD near 4 month lows, EURCAD tests 2 year high, GBPCAD tests 8 month high, JPYCAD near 1 month high, and AUDCAD near 5 month highs

*WTI crude oil climbs to new 3 year highs – from $63.14 up to $66.64

*Bank of Japan interest rate: -0.1% (exp -0.1% / prev -0.1%)

*UK employment change: 102,000 (exp -12,000)

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

*Canada retail sales: 0.2% (exp 0.7% / prev 1.6%) ex autos: 1.6% (exp 0.8% / prev 0.8%)

*Japan CPI y/y: 1.0% (exp 1.1% / prev 0.6%)

*UK GDP Q4 y/y: 1.5% (exp 1.4% / prev 1.7%)

*U.S. GDP (Q4 annualized – first reading): 2.6% (exp 3.0% / prev 3.2%)

*Canada CPI m/m: -0.4% (exp -0.3% / prev 0.3%) y/y: 1.9% (exp 1.9% / prev 2.1%)

*U.S. 10 year yields climb towards 4 year highs @ 2.66%

On Tap for Next week:

Tue Jan 30: EUR GDP (Q4) y/y: exp 2.6% / prev 2.6%

Wed Jan 31: Canada GDP (Nov): exp 0.1% / prev 0%)

U.S. Fed interest rate decision: exp 1.50% / prev 1.50%

Fri Feb 2: U.S. non-farm payrolls: exp 175,000 / prev 148,000

U.S. unemployment rate: exp 4.1% / prev 4.1%

U.S. average hourly earnings y/y: exp 2.6% / prev 2.5%

Technically, USDCAD is bearish. The pairing corrected higher to 1.2500 late last week on a failed break below 1.2400 the morning of the Bank of Canada interest rate hike. However, USDCAD steadily declined this week and we have the first weekly close below 1.2400 since Sept. 22, 2017. A sustained break back above the 1.2400 level will be required for a change in trend.

Topside targets to consider: 1.2390, 1.2420, 1.2495, 1.2550