VBCE Weekly Foreign Exchange Wrap Up and Forecast for Sept 10 – Sept. 14, 2018

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

The GBP and the CAD were the best performing currencies this week while the USD and JPY were the worst preforming currencies. Concerns eased over U.S. tariffs on China as the U.S. government was set to impose just a 10% tariff rather than the previously anticipated 25%. Equity and commodities markets generally rallied on the positive trade news with safe haven flows from the previous week effectively reversing and weakening the USD and JPY. USDCAD tested the 1.3200 level early in the week only to fall to 1.2973 during Thursday's session. Both U.S. inflation reports (producer price index and consumer price index) were soft, taking some pressure off of the U.S. Fed to raise interest rates (probabilities of a Sept and Dec. hike have fallen by about 5% and are at 94.4% and 75.9% respectively). Although U.S. retail sales also missed estimates on Friday, the USD broadly gained taking USDCAD from 1.2981 up to 1.3050 before finishing the week at 1.3035. Oil prices saw an impressive surge on Tuesday gaining 5.5% on the day only to have the gains mostly erased over the next 3 days. Although both the European Central Bank and the Bank of England kept their respective key interest rates unchanged, both the Euro and the Pound performed well on upbeat economic assessments.

Weekly Open

Low

High

Weekly Close

USDCAD

1.3152

1.2973

1.3200

1.3035

EURCAD

1.5203

1.5090

1.5294

1.5160

GBPCAD

1.6993

1.6920

1.7190

1.7030

JPYCAD

0.01185

0.01160

0.01189

0.01163

AUDCAD

0.9349

0.9271

0.9399

0.9320

Themes for the week:

*USDCAD falls to 2 week lows

*EUR and GBP near 6 week high, JPY near 7 month low, AUD near 8 year low

*WTI crude oil jumps 5.5% from $67.31 up to $71.22 before falling back to $68.34

*China CPI m/m: 0.7% (exp 0.5% / prev 0.3%) y/y: 2.3% (exp 2.2% / prev 2.1%)

*UK manufacturing production y/y: 1.1% (exp 1.5% / prev 1.5%)

*UK GDP m/m: 0.3% (exp 0.2% / prev 0.1%)

*UK avg earnings incl. bonus: 2.6% (exp 2.4% / prev 2.4%)

*Eurozone industrial production m/m: -0.8% (exp -0.5% / prev -0.8%)

*U.S. producer price index m/m:-0.1% exp 0.2% prev0% y/y: 2.8% exp 3.2% prev 3.3%

*U.S. PPI ex food & energy m/m: -0.1%exp 0.2%prev 0.1% y/y:2.3%exp2.7% prev 2.7%

*Australia employment change: 44,000 (exp 15,000 / prev -3,900)

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

*Germany CPI harmonized y/y: 1.9% (exp 1.9% / prev 1.9%)

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

*European Central Bank interest rate: 0% (exp 0% / prev 0%)

*U.S. CPI m/m: 0.2% (exp 0.3% / prev 0.2%) y/y: 2.7% (exp 2.8% / prev 2.9%)

*U.S. CPI ex food & energy m/m: 0.1%exp 0.2%prev 0.2% y/y: 2.2%exp 2.4%prev 2.4%

*China retail sales: 9.0% (exp 8.8% / prev 8.8%)

*U.S. retail sales: 0.1% (exp 0.4% / prev 0.7%) ex autos: 0.3% (exp 0.5% / prev 0.9%)

*U.S. retail sales control group: 0.1% (exp 0.4% / prev 0.8%)

*U.S. industrial production: 0.4% (exp 0.3% / prev 0.4%)

*U.S. 10 year Treasuries climb from 2.93% up to 2.98% - 1 month high

On Tap for Next week:


Mon Sept 17: Eurozone CPI m/m: exp 0.2% / prev -0.3% y/y: exp 2% / prev 2%

Tue Sept 18: Japan merchandise trade balance: -¥468.7 billion / prev -¥231.9 billion

Japan exports y/y: exp 6.3% / prev 3.9%

Wed Sept 19: Bank of Japan interest rate: prev -0.1%

UK CPI m/m: exp 0.5% / prev 0% y/y: exp 2.4% / prev 2.5%

Thur Sept 20: UK retail sales ex fuel m/m: exp 0.1% prev 0.9% y/y: exp 2.8% prev 3.7%

Japan national CPI ex fresh food y/y: exp 0.9% / prev 0.8%

Fri Sept 21: Canada retail sales: 0.4% / prev -0.2% ex autos: exp 0.6% / prev -0.1%

Canada CPI m/m: exp -0.1% / prev 0.5% y/y: exp 2.9% / prev 3.0%

Technically, USDCAD is neutral / bearish. After testing a 7 week high on Sept.6 (1.3225), USDCAD has fallen 5 out of the past 7 sessions. Solid readings for the upcoming Canadian retail sales and inflation reports should be enough to solidify an October interest rate hike by the Bank of Canada. A sustained move below 1.2900 or above 1.3200 would be required to change the current trend.

Topside targets to consider: 1.3050, 1.3110, 1.3180, 1.3200

Downside targets to consider: 1.3010, 1.2975, 1.2900, 1.2860

USDCAD 2018/2019 Forecast

2018 Q4

2019 Q1

2019 Q2

2019 Q3

BMO

1.2826

1.2710

1.2650

1.2580

CIBC

1.3200

1.3100

1.2800

1.3100

National Bank

1.2800

1.2800

1.2700

1.2500

RBC

1.2900

1.2800

1.2700

1.2800

Scotiabank

1.2800

1.2500

1.2200

1.2200

TDCanada Trust

1.2800

1.2700

1.2700

1.2600

Average

1.2888

1.2768

1.2625

1.2630

GBPUSD 2018/2019 Forecast

2018 Q4

2019 Q1

2019 Q2

2019 Q3

BMO

1.2800

1.2600

1.3000

1.3400

CIBC

1.3000

1.3500

1.3900

1.4200

National Bank

1.3100

1.3300

1.3400

1.3500

RBC

1.2000

1.2300

1.2500

1.2700

Scotiabank

1.3200

1.3200

1.3500

1.3700

TDCanada Trust

1.3500

1.3700

1.3800

1.3900

Average

1.2933

1.3100

1.3350

1.3567

GBPCAD 2018/2019 Forecast

2018 Q4

2019 Q1

2019 Q2

2019 Q3

BMO

1.6417

1.6015

1.6445

1.6857

CIBC

1.7160

1.7685

1.7792

1.8602

National Bank

1.6768

1.7024

1.7018

1.6875

RBC

1.5480

1.5744

1.5875

1.6256

Scotiabank

1.6896

1.6500

1.6470

1.6714

TDCanada Trust

1.7280

1.7399

1.7526

1.7514

Average

1.6667

1.6728

1.6854

1.7136

EURUSD 2018/2019 Forecast

2018 Q4

2019 Q1

2019 Q2

2019 Q3

BMO

1.1733

1.1800

1.2000

1.2200

CIBC

1.1800

1.2000

1.2300

1.2500

National Bank

1.1800

1.2000

1.2100

1.2200

RBC

1.1200

1.1400

1.1600

1.1800

Scotiabank

1.2000

1.2200

1.2500

1.3000

TD Canada Trust

1.1900

1.2000

1.2100

1.2200

Average

1.1739

1.1900

1.2100

1.2317

EURCAD 2018/2019 Forecast

2018 Q4

2019 Q1

2019 Q2

2019 Q3

BMO

1.5049

1.4998

1.5180

1.5348

CIBC

1.5576

1.5720

1.5744

1.6375

National Bank

1.5104

1.5360

1.5367

1.5250

RBC

1.4448

1.4592

1.4732

1.5104

Scotiabank

1.5360

1.5250

1.5250

1.5860

TD Canada Trust

1.5232

1.5240

1.5367

1.5372

Average

1.5128

1.5193

1.5273

1.5551

2018 Summary

Low

High

2018 Last

USDCAD

1.2253

1.3387

1.3028

EURCAD

1.4800

1.6140

1.5227

GBPCAD

1.6596

1.8292

1.7147

JPYCAD

0.01091

0.01239

0.01165

AUDCAD

0.9272

1.0243

0.9350

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

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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.