VBCE Weekly Foreign Exchange Wrap Up and Forecast for July 30 – Aug. 3, 2018

VBCE Weekly Foreign Exchange Wrap Up and Forecast for July 30 – Aug. 3, 2018

The CAD was the best performing currency for the 2^nd consecutive week reaching multi-month highs vs most currency pairings. USDCAD fell from 1.3080 down to 1.2990 before climbing to 1.3098. The spike higher was short-lived coming off some NAFTA related headlines that Canada was to be excluded from a meeting between the U.S. and Mexico. The same day, Canada posted a very strong May GDP figure sending USDCAD down to 1.2982. The pairing held a 1.2967 – 1.3040 range over the balance of the week helped by some NAFTA positive headlines and positive market sentiment. Also, helping the CAD were some very strong trade data for the month of June. Despite the introduction of steel and aluminum tariffs in June, Canada's trade deficit surprisingly narrowed to the best level in 19 months. In addition, Canada's exports surged to a record $50.7 billion.

Themes for the week:

*CAD is the top performer on strong domestic data / NAFTA optimism - USDCAD falls from 1.3080 down to 1.2968 - 7 week low

*EUR falls to 2 month lows, JPY near 6 month lows, GBP near 7 month lows, AUD near 2 year lows

*WTI crude oil closes unchanged within a $66.90 -$70.40 range

*Japan unemployment rate: 2.4% (exp 2.3% / 2.2%)

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

*Germany retail sales: 1.2% (exp 1% / prev -2.1%)

*Germany unemployment rate: 5.2% (exp 5.2% / prev 5.2%)

*Eurozone GDP Q2y/y: 2.1% (exp 2.2% / prev 2.5%)

*Eurozone unemployment rate: 8.3% (exp 8.3% / prev 8.3%)

*Eurozone core CPI y/y: 1.1% (exp 1.0% / prev 0.9%)

*Canada GDP (May): 0.5% (exp 0.4% / prev 0.1%)

*U.S. ADP employment change: 219,000 (exp 185,000 / prev 181,000)

*U.S. Fed interest rate decision: 2.0% (exp 2.0% / prev 2.0%)

*Bank of England interest rate decision: 0.75% (exp 0.75% / prev 0.50%)

*Canada international merchandise trade: -$0.63b (exp -$2.3b/ prev -$2.72b)

*U.S. non-farm payrolls: 157,000 (exp 190,000 / prev 248,000)

*U.S. unemployment rate: 3.9% (exp 3.9% / prev 4.0%)

*U.S. average hourly earnings y/y: 2.7% (exp 2.7% / prev 2.7%)

*U.S. trade balance: -$46.3 billion (exp -$46.5 billion / prev -$43.2 billion)

*U.S. 10 year Treasuries flat between 2.94% up to 3.01%

On Tap for Next week:

Mon Aug 6: Canada civic holiday

Tue Aug 7: Australia RBA interest rate: exp 1.5% / prev 1.5%

Wed Aug 8: China trade balance: exp $39.33 billion / prev $41.61 billion

Japan machinery orders m/m: -1.3% y/y: -3.7%

Thur Aug 9: China CPI m/m: exp 0.2% / prev -0.1% y/y exp 1.9% / prev 1.9%

U.S. producer price index m/m: exp 0.2% / prev 0.3% y/y: exp 3.4% / prev 3.4%

Fri Aug 10: UK GDP (June): exp 0.2% / prev 0.3% Q2 (qoq): exp 0.4% / prev 0.2%

U.S. CPI m/m: exp 0.2% / prev 0.1% y/y: exp 2.9% / prev 2.9%

CPI ex food & energy m/m: exp 0.2% / prev 0.2% y/y: exp 2.3% / prev 2.3%

Canada net employment change: exp 24,000 / prev 31,800

Canada unemployment rate: exp 5.8% / prev 6%

Technically, USDCAD is bearish / neutral. Although downside gains were limited this week to just shy of the key technical 1.2960 level, top-side rallies were generally contained by resistance at 1.3040. The weekly close below the psychological 1.30 level puts downside / renewed USD weakness in focus for next week with CAD gains accelerating on a break below 1.2960.

Topside targets to consider: 1.3040, 1.3080, 1.3108, 1.3135

Downside targets to consider: 1.2960, 1.2920, 1.2860, 1.2820