VBCE Weekly FX Wrap Up and Forecast for July 16th - July 20th

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

The CAD had a strong start to the week only to succumb to the broader uptrend in the USD mid-week. Fed Chair Powell offered up some hawkish comments that propelled the broad USD index (DXY) to its highest level in more than 1 year. After testing the 1.3108 level early in the week, USDCAD climbed to 1.3292 on Thursday – a 3 week high. However, the trend changed abruptly as the USD sold off heavily during Friday's session. U.S. President Trump stated that he was "not thrilled" with the U.S. Fed interest rate hikes and that the USD was too strong – the strong USD puts the U.S. at a disadvantage on trade with other countries. Also, on Friday, Canadian retail sales data for May saw a marked improvement on April data while inflation climbed more than expected to a 6 year high. This increases the probability that the Bank of Canada will hike interest rates again in October. USDCAD declined from 1.3292 – a 3 week high to 1.3115 – near a 1 week low during Friday's session. USDCAD had climbed from 1.3157 up to 1.3292 just one day prior. After hitting a 1 year high on Thursday, the USD index saw its weekly gains erased during the course of Thursday's NA session and Friday trade. The USD finishes the week as the worst performing currency along with the GBP which suffered from a combination of poor economic data and BREXIT concerns. The JPY, EUR, and CAD were the best performing currencies this week. Oil was under pressure falling 5% early in the week only to surge higher by 6% over the final 3 days. Saudi Arabia reported that they do not intend to boost crude oil supply levels this month while planning to decrease supply levels in August.

Weekly Open

Low

High

Weekly Close

USDCAD

1.3160

1.3108

1.3292

1.3145

EURCAD

1.5377

1.5320

1.5470

1.5396

GBPCAD

1.7408

1.7167

1.7468

1.7255

JPYCAD

0.01171

0.01166

0.01182

0.01178

AUDCAD

0.9755

0.9704

0.9795

0.9737

Themes for the week:

*USD broadly gains on Fed Chairman Powell's comments before sharply reversing on Trump's comments/ USD index (DXY) climbs from 94.30 up to 95.65 (1 year high) before falling to 94.36

*USDCAD climbs from 1.3108 (1 month low) up to 1.3292 (3 week high) before falling to 1.3115

*EUR climbs to 3 week high before falling back towards 1 week lows, JPY and GBP near 2 month lows, AUD tests 2 week high before falling back

*WTI crude oil falls from $70.84 down to $67.03 before surging 6%+ to $71

*China retail sales: 9.0% (exp 9.0% / prev 8.5%)

*China GDP Q2 y/y: 6.7% (exp 6.7% / prev 6.8%)

*U.S. retail sales ex-autos: 0.4% (exp 0.4% / prev 1.4%)

*U.S. retail sales control group: 0.0% (exp 0.4% / prev 0.8%)

*UK avg earnings ex-bonus: 2.7% (exp 2.7% / prev 2.8%)

*Canada manufacturing shipments: 1.4% (exp 0.5% / prev -1.1%)

*U.S. industrial production: 0.6% (exp 0.6% / prev -0.5%)

*U.S. Fed Powell speech: "best policy is to keep gradually raising rates."

*UK core CPI y/y: 1.9% (exp 2.2% / prev 2.1%)

*Eurozone core CPI y/y: 0.9% (exp 1% / prev 1%)

*Australia employment change: 50,00 (exp 17,000 / prev 13,400)

*UK retail sales m/m: -0.5% (exp 0.4% / prev 1.4%)

*Canada retail sales: 2.0% (exp 1.0%/prev -0.9%) ex autos: 1.4% (exp 0.5%/prev 0.2%)

*Canada CPI m/m: 0.1% (exp 0.1%/prev 0.1%) y/y: 2.5% (exp 2.3% / prev 2.2%)

*U.S. 10 year Treasuries climb from 2.83% up to 2.90%

On Tap for Next week:


Wed July 25: Australia CPI Q2 (qoq): exp / prev 0.4%

EIA crude oil stocks change: exp 1% / prev 1%

Thur July 26: ECB interest rate decision: exp 0% / prev 0%

U.S. durable goods orders exp 1.1% / prev -0.6%

Japan Tokyo CPI ex fresh food: exp 0/6% / prev 0.7%

Fri July 27: U.S. GDP Q2 annualized: exp % / prev 2%

U.S. GDP price index Q2: exp 2.3% / prev 2.2%

Technically, USDCAD is bearish. The pairing climbed from a key level at 1.3160 on Thursday and closed the session near three week highs above the 1.3230 resistance level. The large up-move in the USD came in conjunction with the USD index breaking a key technical zone and trading to 1 year highs. However, the trend reversed course on Friday with USDCAD falling through the 1.3230 and 1.3160 support levels and testing the weekly low near 1.3110. The pairing effectively closed the week below the key 1.3150/60 level; leaving the door open for further downside and a possible 3rd test of the 1.3065 level.

Topside targets to consider: 1.3170, 1.3225, 1.3270, 1.3330

Downside targets to consider: 1.3110, 1.3065, 1.3000, 1.2950

USDCAD 2018/2019 Forecast

2018 Q3

2018 Q4

2019 Q1

2019 Q2

BMO

1.30

1.28

1.27

1.27

CIBC

1.33

1.34

1.31

1.28

National Bank

1.33

1.28

1.28

1.27

RBC

1.28

1.28

1.26

1.26

Scotiabank

1.28

1.28

1.25

1.22

TDCanada Trust

1.28

1.28

1.27

1.27

GBPCAD 2018/2019 Forecast

2018 Q3

2018 Q4

2019 Q1

2019 Q2

BMO

1.7463

1.7422

1.7540

1.7710

CIBC

1.7423

1.7822

1.7816

1.7792

National Bank

1.7290

1.7024

1.7024

1.7018

RBC

1.6256

1.5360

1.5498

1.5750

Scotiabank

1.6640

1.6896

1.6500

1.6470

TDCanada Trust

1.7563

1.7820

1.7721

1.7848

EURCAD 2018/2019 Forecast

2018 Q3

2018 Q4

2019 Q1

2019 Q2

BMO

1.5426

1.5500

1.5633

1.5560

CIBC

1.5561

1.5946

1.5851

1.5744

National Bank

1.5295

1.5232

1.5360

1.5367

RBC

1.4848

1.4336

1.4364

1.4616

Scotiabank

1.4976

1.5360

1.5250

1.5250

TD Canada Trust

1.5384

1.5512

1.5443

1.5569

2018 Summary

2018 Open

Low

High

2018 Last

USDCAD

1.2580

1.2253

1.3387

1.3145

EURCAD

1.5100

1.4820

1.6140

1.5396

GBPCAD

1.6975

1.6761

1.8292

1.7255

JPYCAD

0.0112

0.0109

0.0124

0.01178

AUDCAD

0.9811

0.9549

1.0243

0.9737

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.