VBCE Weekly FX Wrap Up and Forecast for Aug. 6 - 10

The JPY was the best performing currency this week while the USD was a close 2^nd. Japan had better than expected GDP data while also benefitting from its safe-haven status in the wake of Friday's global equity market sell-off. USDCAD initially climbed to 1.3040 before falling to a 2 month low at 1.2960 early in the week. Headlines that Saudi Arabia was selling Canadian investments in retaliation to Canada's opposition of women's rights violations subsequently sent USDCAD from 1.3040 up to 1.3120. The move was short-lived with USDCAD falling to 1.3005 late Wednesday on positive NAFTA headlines / technical selling. The pairing re-tested 1.3120 resistance in early Friday trade on broad USD strength (USD index surged to a 13 month high) emanating from risk aversion flows from Turkey's currency crisis. The Turkish lira lost 20% on Friday alone and has lost 50% of its value since the beginning of July. Canada posted solid employment headlines taking USDCAD down to 1.3040 as 54,100 jobs were added while the unemployment rate dropped to 5.8% - near a 40 year low. Details within the report suggested the report was not as good as the headline suggested: 28,000 full time jobs were lost while 82,000 part-time jobs were created. Hourly earnings data declined to 3.0% from 3.5% year on year. Given the risk aversion flows / broad USD strength, USDCAD climbed to 1.3153 and held a 1.3115 – 1.3150 range for the balance of the session.

Themes for the week:

*JPY and USD are the top performers on risk aversion flows / USD index climbs to 13 month high

*USDCAD tests 2 month low @ 1.2960 before climbing to 2 week high @ 1.3153

*EUR falls to 7 month lows, JPY near 1 month high, GBP near 9 month lows, AUD near 2 year lows

*WTI crude oil down 1% / trades within a $66.12 -$69.90 range

*Australia RBA interest rate: 1.50% (exp 1.5% / prev 1.5%)

*China trade balance: $28.05 billion (exp $39.33 billion / prev $41.47 billion)

*Japan machinery orders m/m: -8.8% (exp -1.3% / -3.7%)

*China CPI m/m: 0.3% (exp 0.2% / prev -0.1%) y/y: 2.1% (exp 1.9% / prev 1.9%)

*U.S. producer price index m/m:0%(exp0.2%/prev 0.3%) y/y:3.3%(exp 3.4%/prev 3.4%)

*U.S. PPI exfood&energy m/m:0.1% (exp 0.2%/prev 0.3%)y/y:2.7%(exp2.8%/prev2.8%)

*Japan GDP Q2 annualized: 1.9% (exp 1.4% / prev -0.6%)

*UK GDP (June): 0.1% (exp 0.2% / prev 0.3%) Q2 (qoq): 0.4% (exp 0.4%/prev 0.2%)

*U.S. CPI m/m: 0.2% (exp 0.2% / prev 0.1%) y/y: 2.9% (exp 3.0% / prev 2.9%)

*CPI exfood & energy m/m:0.2% (exp 0.2%/prev 0.2%) y/y: 2.4% (exp 2.3%/prev 2.3%)

*Canada net employment change: 54,100 (exp 17,000 / prev 31,800)

*Canada unemployment rate: 5.8% (exp 5.9% / prev 6.0%)

*U.S. 10 year Treasuries decline from 2.98% down to 2.86%

On Tap for Next week:

Tue Aug 14: China retail sales y/y: exp 9% / prev 9%

China industrial production: exp 6.3% / prev 6.0%

Germany CPI (harmonized) y/y: exp 2.1% / prev 2.1%

Germany GDP Q2 (qoq): exp 0.4% / prev 0.3%

UK average earnings incl. bonus: prev 2.5%

Eurozone GDP Q2 y/y: exp 2.1% / prev 2.1% qoq: exp 0.3% / prev 0.3%

Wed Aug 15: UK CPI y/y: prev 2.4%

UK CPI core y/y: exp 2.2% / prev 1.9%

U.S. retail sales: exp 0.3% / prev 0.5% ex autos: exp 0.4% / prev 0.4%

U.S. retail sales control group: exp 0.4% / prev 0%

U.S. industrial production: exp 0.3% / prev 0.6%

Japan merchandise trade balance: exp JPY534.0 billion / prev JPY721.4 billion

Thur Aug 16: Australia unemployment rate: prev 5.4%

Australia employment change: prev 50,900

UK retail sales m/m: prev -0.5% y/y: prev 2.9%

Canada manufacturing shipments: prev 1.4%

Fri Aug 17: Eurozone CPI m/m: exp 0.1% / prev 0.1% y/y: exp 2.0% / prev 2.1%

Core m/m: prev 0% y/y: prev 1.1%

Canada CPI m/m: exp 0.1% / prev 0.1% y/y: exp 2.4% / prev 2.5%

Technically, USDCAD is neutral / bullish. Initial declines this week stalled at the key technical 1.2960 level, while several top-side rallies were generally contained by resistance at 1.3040 and 1.3120. The pairing managed to close the week above the 1.3120 level despite a solid Canadian employment report. The risk-off atmosphere surrounding Turkey's currency crisis on Friday overshadowed data driven flows. Should geo-political uncertainties subside over the weekend / next week, there is retracement risk as we witnessed during Wednesday's session that saw USDCAD climb to 1.3120 only to fall back to 1.30.

Topside targets to consider: 1.3150, 1.3180, 1.3220, 1.3260

Downside targets to consider: 1.3115, 1.3040, 1.3000, 1.2960