VBCE Weekly Foreign Exchange Wrap Up and Forecast for Jan. 29 – Feb. 2, 2018

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

The USD downtrend continued this week – even with a more hawkish outlook by the U.S. Fed. Equity markets pared gains while U.S. yields surged after Wednesday's U.S. Fed interest rate policy announcement. While the Fed kept its key rate unchanged, there was mention that "Inflation on a 12‑month basis is expected to move up this year and to stabilize around the Committee's 2 percent objective over the medium term." The USD gained briefly on the Fed headlines but quickly reversed course with USDCAD falling to 5 month lows at 1.2250. After another test of 1.2255 on Thursday, USDCAD reversed course surging higher on Friday. The first catalyst was an all-around strong U.S. employment report. U.S. 10 year yields soared to 4 year highs near 2.85% (it was 2.40% to start 2018) and with fears of rising interest rates, equity markets sold off heavily on Friday with the DJIA plunging 666 pts. Risk aversion flows took USDCAD from 1.2400 up to 1.2436 in late trade –a 10 day high. With Friday's move the USD erased its earlier losses to become the 2nd best performing currency on the week behind the Euro.

Weekly Open

Low

High

Weekly Close

USDCAD

1.2310

1.2250

1.2436

1.2421

EURCAD

1.5297

1.5230

1.5489

1.5465

GBPCAD

1.7425

1.7305

1.7558

1.7532

JPYCAD

0.01134

0.01118

0.01138

0.01127

AUDCAD

0.9988

0.9804

1.0002

0.9836

Themes for the week:

*USD recovers to post winning week vs most major currencies (EURUSD the exception)

*USDCAD tests 5 month lows (1.2250), EURCAD tests 2 year high (1.5489), GBPCAD near 8 month high, JPYCAD and AUDCAD both test 1 month lows

*WTI crude oil holding near 3 year highs – from $63.80 to $66.37

*EUR GDP (Q4) y/y: 2.6% (exp 2.7% / prev 2.6%)

*Canada GDP (Nov): 0.4% (exp 0.4% / prev 0%)

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

*U.S. non-farm payrolls: 200,000 (exp 180,000 / prev 148,000 *revised to 160,000)

*U.S. unemployment rate: 4.1% (exp 4.1% / prev 4.1%)

*U.S. average hourly earnings y/y: 2.9% (exp 2.6% / prev 2.5% *revised to 2.7%)

*U.S. 10 year yields climb towards 4 year highs @ 2.85%

On Tap for Next week:


Tue Feb 6: Australia interest rate decision: exp 1.5% / prev 1.5%

Canada Int'l merchandise trade: exp -$1.24 billion / prev -$2.54 billion

U.S. trade balance: exp -$51.7 billion / prev -$50.5 billion

Thur Feb 8: Bank of England interest rate decision: exp 0.5% / prev 0.5%)

Fri Feb 9: Canada net employment change: exp 44,100 / prev 78,600

Canada unemployment rate: exp 5.7% / prev 5.7%

Technically, USDCAD is bullish. The pairing had declined steadily for the past 3 weeks from 1.2590 down to 5 month lows at 1.2250. After testing this level on two occasions this week, USDCAD surged nearly 2 cents on Friday to close the week near 10 day highs.

Topside targets to consider: 1.2420, 1.2495, 1.2550

Downside targets to consider: 1.2305, 1.2250, 1.2200

USDCAD 2018 Forecast

Bank

2018 Q1

2018 Q2

2018 Q3

2018 Q4

TDCanada Trust

1.2345

1.2345

1.2345

1.2345

National Bank

1.22

1.21

1.24

1.28

RBC

1.33

1.30

1.27

1.24

CIBC

1.28

1.33

1.32

1.31

BMO

1.2616

1.2750

1.2670

1.2540

Scotia Bank

1.28

1.27

1.26

1.25

2017 CAD Summary

2017Summary

2017Open

Low

High

2018 Last

USDCAD

1.3450

1.2060

1.3787

1.2490

EURCAD

1.4158

1.3788

1.5371

1.5472

GBPCAD

1.6590

1.5736

1.7849

1.7440

JPYCAD

0.01150

0.01091

0.01240

0.01139

AUDCAD

0.9708

0.9615

1.0343

0.9875

Sources: Reuters, Bloomberg, FXStreet, RBC Capital Markets, Bank of Canada, U.S. Federal Reserve, CNBC, Forexlive, CMEGroup, BNN

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The information and opinions contained herein are gathered from sources which are thought to be reliable but the reader should not assume that the information and opinions are official or final. VBCE makes no warranty concerning the accuracy of the information and opinions, and accepts no liability for the consequences of any actions taken on the basis of the information and opinions provided. The content is for general information only and does not constitute in anyway giving financial advice.