VBCE Weekly FX Wrap Up and Forecast for Aug. 13 - 17th

VBCE Weekly FX Wrap Up and Forecast for Aug. 13 - 17th

The CAD was the best performing currency this week while the USD and the GBP finished at the back of the pack. The USD saw broad gains early in the week with the USD index reaching a new 13 month high (97.00) on Wednesday. From that point, the USD broadly declined as global equity markets enjoyed strong gains and the currency crisis in Turkey eased. (The TRY recovered 20% against the USD this week after last Friday's rout) Oil prices were volatile losing as much as 5.5% before recovering to close the week down 3% although this seemed to have little impact on the CAD. After a dip from 1.3170 down to 1.3048 earlier in the week, USDCAD moved higher to challenge the 1.3170/1.3177 area on 3 more occasions. Canadian CPI inflation data out Friday morning was much higher than expected taking USDCAD from 1.3162 down to 1.3064. After a brief correction up to 1.3107, the pairing eased lower to close the week near the lows at 1.3057. Inflation grew at the highest rate since 2011, effectively putting pressure on the Bank of Canada to perhaps raise interest rates 2 more times this year.

Weekly Open

Low

High

Weekly Close

USDCAD

1.3140

1.3048

1.3177

1.3057

EURCAD

1.5000

1.4800

1.5013

1.4935

GBPCAD

1.6779

1.6596

1.6806

1.6640

JPYCAD

0.01186

0.01172

0.01195

0.01181

AUDCAD

0.9597

0.9418

0.9600

0.9543

Themes for the week:

*CAD outperforms as inflation surges to 7 year high

*USDCAD tests 4 week high @ 1.3177 before falling toward 1 week low @ 1.3053

*EUR and GBP fall to 9 month lows, JPY near 6 week high, AUD near 2 year lows

*WTI crude oil down 3% on the week / volatile within a $64.41 -$68.34 range

* China retail sales y/y: 8.8% (exp 9% / prev 9%)

*China industrial production: 6.0% (exp 6.3% / prev 6.0%)

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

*Germany GDP Q2 (qoq): 0.5% (exp 0.4% / prev 0.3%)

*UK average earnings incl. bonus: 2.4% (exp 2.5% / prev 2.5%)

*Eurozone GDP Q2 y/y: 2.2% (exp 2.1% / prev 2.1%) qoq: 0.4% (exp 0.3% / prev 0.3%)

*UK CPI y/y: 2.5% (exp 2.5% / prev 2.4%) core: 1.9% (exp 1.9% / prev 1.9%)

*U.S. retail sales: 0.5% (exp 0.1% / prev 0.2%) ex autos: 0.6% (exp 0.3% / prev 0.2%)

*U.S. retail sales control group: 0.5% (exp 0.4% / prev -0.1%)

*U.S. industrial production: 0.1% (exp 0.3% / prev 1.0%)

*Japan merchandise trade balance: -¥231.2billion (exp -¥50.0b / prev ¥720.8 b)

*Australia unemployment rate: 5.3% (exp 5.4% / prev 5.4%)

*Australia employment change: -3,900 (exp 15,000 / prev 50,900)

*UK retail sales m/m: 0.7% (exp 0.2% / prev -0.5%) y/y: 3.5% (exp 3.0% / prev 2.9%)

*Canada manufacturing shipments: 1.1% (exp 0.9% / prev 1.5%)

*Eurozone CPI m/m: -0.3% (exp -0.3% / prev 0.1%) y/y: 2.1% (exp 2.1% / prev 2.1%)

*Core m/m: -0.5% (exp -0.5% / prev 0%) y/y: 1.1% (exp 1.1% / prev 1.1%)

*Canada CPI m/m: 0.5% (exp 0.1% / prev 0.1%) y/y: 3.0% (exp 2.5% / prev 2.5%)

*U.S. 10 year Treasuries unchanged at 2.86% (range 2.84% to 2.90%)

On Tap for Next week:


Tue Aug 21: Canada wholesale sales: exp 0.8% / prev 1.2%

Wed Aug 22: Canada retail sales: exp 1.1% / prev 2.0% ex autos: exp 0.7% / prev 1.4%

U.S. FOMC meeting minutes

Thur Aug 23: Japan national CPI: exp 0.4% / prev 0.7%

U.S. Jackson Hole economic symposium

Fri Aug 24: Germany GDP Q2 y/y: 2.3% q/q: 0.5%

U.S. durable goods orders: exp 1.1% / prev 1.0% ex transportation: exp 0.5% / prev 0.4%

U.S. Jackson Hole economic symposium

Technically, USDCAD is neutral / bearish. The USD was broadly stronger for the first 4 days this week as the USD index DXY tested the 97.00 level – the highest since June 2017. The USD came under pressure Friday with the DXY falling to 96.09 – below its weekly opening level of 96.40. USDCAD rallies stalled at the 1.3170-1.3177 resistance zone – there were 4 attempts to breach this zone. The pairing ultimately declined to close below the weekly opening level and just above the weekly low of 1.3048 and technical support at 1.3040. Given the light economic calendar next week and the rebound in positive market sentiment and broad-based USD weakness to end the week, look for a re-test of the 1.2960 level.

Topside targets to consider: 1.3110, 1.3175, 1.3220

Downside targets to consider: 1.3040, 1.3000, 1.2960

USDCAD 2018/2019 Forecast

2018 Q3

2018 Q4

2019 Q1

2019 Q2

BMO

1.3056

1.2826

1.2710

1.2650

CIBC

1.2800

1.3200

1.3100

1.2800

National Bank

1.3200

1.2800

1.2800

1.2700

RBC

1.3000

1.2800

1.2600

1.2600

Scotiabank

1.2800

1.2800

1.2500

1.2200

TDCanada Trust

1.2820

1.2820

1.2658

1.2658

GBPUSD 2018/2019 Forecast

2018 Q3

2018Q4

2019 Q1

2019Q2

BMO

1.3066

1.2866

1.2600

1.3000

CIBC

1.3000

1.3300

1.3600

1.3900

National Bank

1.2800

1.3100

1.3300

1.3400

RBC

1.2700

1.2000

1.2300

1.2500

Scotiabank

1.3000

1.3200

1.3200

1.3500

TDCanada Trust

1.3700

1.3900

1.4000

1.4100

GBPCAD 2018/2019 Forecast

2018 Q3

2018 Q4

2019 Q1

2019 Q2

BMO

1.7059

1.6502

1.6015

1.6445

CIBC

1.6640

1.7556

1.7816

1.7792

National Bank

1.6896

1.6768

1.7024

1.7018

RBC

1.6510

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

EURUSD 2018/2019 Forecast

2018 Q3

2018 Q4

2019 Q1

2019 Q2

BMO

1.1666

1.1766

1.1800

1.2000

CIBC

1.1600

1.1800

1.2000

1.2300

National Bank

1.1500

1.1800

1.2000

1.2100

RBC

1.1600

1.1200

1.1400

1.1600

Scotiabank

1.1700

1.2000

1.2200

1.2500

TD Canada Trust

1.2000

1.2100

1.2200

1.2300

EURCAD 2018/2019 Forecast

2018 Q3

2018 Q4

2019 Q1

2019 Q2

BMO

1.5231

1.5091

1.4998

1.5180

CIBC

1.4848

1.5576

1.5720

1.5744

National Bank

1.5180

1.5104

1.5360

1.5367

RBC

1.5080

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

1.3057

EURCAD

1.5100

1.4800

1.6140

1.4935

GBPCAD

1.6975

1.6596

1.8292

1.6640

JPYCAD

0.01116

0.01091

0.01239

0.01181

AUDCAD

0.9811

0.9418

1.0243

0.9543

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