VBCE Weekly Foreign Exchange Wrap Up and Forecast for June 18 – June 22, 2018

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

The CAD was the worst performing currency this week while the JPY was the top performer as global equity markets trended lower before rebounding on Friday. The USD made gains early in the week but was the worst performing currency through Thursday and Friday. With oil prices near 3 month lows early in the week, global equity markets continuing to lose ground over U.S. trade concerns, and the fact that USDCAD had closed the previous week above the former 2018 high of 1.3125 all contributed to the weakening CAD this week. USDCAD gained every day this week making it 7 consecutive days of gains. Friday was exceptionally volatile with a decline from 1.3320 down to 1.3260 followed by a spike to 1.3382 – a new 1 year high, after both Canadian retail sales and CPI (inflation) data missed market estimates. (Since the last Bank of Canada policy announcement signaled an interest rate hike for the upcoming July 11th meeting, market probabilities for a rate hike have declined from about 80% to 50% given the recent weakness in Canadian data and the uncertainty surrounding trade.) The move above 1.33 was short-lived with USDCAD falling amidst broad USD weakness and a surge in oil prices after an OPEC decision to increase oil output by 1 million bpd. There were earlier reports that global oil demand in the 2nd half of this year could increase by 2 million barrels per day and the market was probably expecting production to be increased by a much larger amount given that oil was trading near 3 month lows earlier this week prior to the OPEC meetings. Oil prices surged 5%+ on Friday, gaining 9% on the week to close near 3 week highs. USDCAD closed the week near session lows (and also near 4 day lows) @ 1.3268. The CAD managed to erase the bulk of its post retail sales and CPI data losses against most currencies to finish the week on a slightly stronger note. While the JPY benefitted this week from its "safe haven" status, the GBP also saw some strength as although the Bank of England held its key interest rate at 0.50%; 3 out of 9 members voted for a hike –a hawkish surprise.

Weekly Open

Low

High

Weekly Close

USDCAD

1.3180

1.3160

1.3382

1.3268

EURCAD

1.5305

1.5247

1.5585

1.5468

GBPCAD

1.7494

1.7423

1.7772

1.7604

JPYCAD

0.01193

0.01191

0.01214

0.01207

AUDCAD

0.9820

0.9740

0.9925

0.9871

Themes for the week:

*USDCAD climbs from 1.3160 up to 1.3382 – 1 year high

*EUR and GBP climb towards 2 month highs, AUD and JPY test 3 month highs

*WTI crude oil rebounds from 3 month lows (climbs 9% from $63.64 up to $69.38)

*Bank of England (BOE) interest rate decision: 0.50% (exp 0.5% / prev 0.5%) – GBP surges as 3 of 9 members voted to raise interest rates (hawkish sign)

*Canada ADP employment change: 2,900 (prev. 30,200)

*Canada wholesale sales: 0.1% (exp 0.5% / prev 1.4%)

*Canada retail sales: -1.2% (exp 0% / prev 0.8%) ex autos: 0.1% (exp 0.5% / prev 0%)

*Canada CPI m/m: 0.1% (exp 0.3% / prev 0.3% y/y: 2.2% (exp 2.5% / prev 2.2%)

*OPEC announces 1 million bpd production increase (less than market expected – sends oil up 5%)

*U.S. 10 year Treasuries flat in a 2.86% - 2.95% range

On Tap for Next week:


Mon June 25: Germany IFO business climate: prev 102.2

Tue June 26: Japan leading economic index: exp 105.6 / prev 105.6

Wed June 27: U.S. durable goods orders: exp 0.2% / prev -1.7%

Japan retail trade y/y: prev 1.6%

Thur June 28: Eurozone business climate: prev 1.45

U.S. GDP (Q1 annualized): exp 2.2% / prev 2.2%

Japan Tokyo CPI ex fresh food y/y: prev 0.5%

Fri June 29: Germany retail sales m/m: prev 2.3%

Germany unemployment change: prev -11,000

Germany unemployment rate: prev 5.2%

UK GDP (q1 y/y): prev 1.2%

Eurozone core CPI y/y: prev 1.1%

Canada GDP (April): prev 0.3%

Technically, USDCAD is neutral / bullish. The pairing has put up gains over 7 consecutive days although there was a sharp pull-back on Friday after new 1 year highs were tested @ 1.3382. USDCAD fell back below Thursday's high of 1.3335 and finished the day near session lows (also near a 4 day low) @ 1.3268 taking momentum away from the bullish trend.

Topside targets to consider: 1.3300, 1.3320, 1.3350, 1.3380

Downside targets to consider: 1.3260, 1.3220, 1.3190, 1.3160

USDCAD 2018/2019 Forecast

Bank

2018 Q3

2018 Q4

2019 Q1

2019 Q2

TDCanada Trust

1.2820

1.2820

1.2658

1.2658

National Bank

1.33

1.28

1.28

1.27

RBC

1.28

1.28

1.26

1.26

CIBC

1.33

1.34

1.31

1.28

BMO

1.2880

1.2780

1.2710

1.2650

Scotia Bank

1.26

1.25

1.25

1.22

2018 CAD Summary

2018Summary

2018Open

Low

High

2018 Last

USDCAD

1.2580

1.2253

1.3382

1.3268

EURCAD

1.5100

1.4820

1.6140

1.5468

GBPCAD

1.6975

1.6761

1.8292

1.7604

JPYCAD

0.01116

0.01091

0.01239

0.01207

AUDCAD

0.9811

0.9549

1.0243

0.9871

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.