VBCE Weekly Foreign Exchange Wrap Up and Forecast for Oct. 8 – Oct. 12, 2018

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

The CAD was the worst performing currency this week while the JPY was the strongest. The bulk of the CAD gains that came after last week's announced USMCA trade deal were wiped out during Wednesday's and Thursday's sessions. Risk aversion flows from heavy equity market losses combined with a significant drop in oil prices were the main factors for CAD weakness in the absence of any top tier economic data. Canadian oil prices (Western Canadian Select) traded near historical lows - $20/barrel with a record $50+ discount compared to U.S. WTI crude because of increased production in the Alberta oil sands and pipeline bottlenecks due to the Prince George pipeline explosion and refinery maintenance season in the United States. USDCAD broke above last week's highs at 1.2956 and extended up to 1.3010 on Monday and Tuesday before correcting to 1.2926 in early Wednesday trade. Equity markets came under heavy selling pressure during Wednesday's session with the DJIA down more than 1,000 pts at one point. USDCAD climbed to 1.3073 – a two week high before falling back to 1.3000 on Friday as global markets staged a brief rally. USDCAD pushed higher several times during the heightened market volatility but failed to break through the 1.3050 – 1.3070 resistance area and finished the week near 1.3020.

Weekly Open

Low

High

Weekly Close

USDCAD

1.2935

1.2924

1.3073

1.3021

EURCAD

1.4905

1.4856

1.5134

1.5052

GBPCAD

1.6970

1.6925

1.7285

1.7125

JPYCAD

0.01137

0.01136

0.01167

0.01161

AUDCAD

0.9126

0.9126

0.9293

0.9254

Key Events for the week:

*USDCAD climbs to 2 week high

*USD index declines from 96.16 down to 94.95

*EUR near 2 week high, GBP near 3 month high

*JPY near 1 month high, AUD near 8 year low

*WTI oil falls 6.5% before closing down just 3.5% (range $70.60 - $75.26)

*Germany trade balance: €18.3 billion exp €16.4 billion / prev €15.9 billion

*Canadian housing starts: 189,000 exp 210,000 / prev 198,800

*UK manufacturing production m/m: -0.2% exp 0.1% / prev -0.2%

*UK GDP m/m: 0% exp 0.1% / prev 0.4%

*U.S. producer price index m: 0.2% exp0.2%/prev -0.1% y/y:2.6% exp2.8% /prev 2.8%

*U.S. PPI ex food& energy m/m:0.2% exp0.2%/prev-0.1% y/y:2.5% exp2.5%/prev 2.3%

*Canada building permits: 0.4% exp 0.5% / prev -1.5%

*U.S. CPI m/m: 0.1% exp 0.2% / prev 0.2% y/y: 2.3% exp 2.4% / prev 2.7%

*U.S. CPI ex food&energy m/m:0.1% exp 0.2%/prev0.1% y/y:2.2% exp 2.3%/prev 2.2%

*Canada new housing price index m:0% exp0.1%prev 0.1% y/y:0.4% exp0.5%prev 0.5%

*China trade balance: $31.69 billion exp $19.40 billion / prev $27.89 billion

*Germany CPI harmonized y/y: 2.2% exp 2.2% / prev 2.2%

*Eurozone industrial production m/m: 1% exp 0.4% / prev -0.7%

*U.S. 10 year Treasury yields drop from 8 year highs - 3.25% down to 3.13%

On Tap for Next week:


Mon Oct. 15: Bank of Canada business outlook survey

U.S. retail sales: exp 0.5% / prev 0.1% ex autos: exp 0.3% / prev 0.3%

Tues Oct 16: China CPI m/m: exp 0.7% / prev 0.7% y/y: exp 2.5% / prev 2.3%

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

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

Wed Oct 17: EU Brexit Summit

UK CPI y/y: exp 2.8% / prev 2.7% Core: exp 1.8% / prev 2.1%

Eurozone CPI y/y: exp 2.1% / prev 2.1% Core: exp 1.0% / prev 0.9%

U.S. FOMC minutes

Thur Oct 18: EU Brexit Summit

Australia employment change: exp 15k / prev 44k

Australia unemployment rate: exp 5.3% / prev 5.3%

UK retail sales m/m: exp -0.8% / prev 0.3% y/y: exp 3.3% / prev 3.3%

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

Fri Oct 19: China GDP Q3 y/y: exp 6.6% / prev 6.7%

Canada retail sales m/m: exp 0.4% / prev 0.3% ex autos: exp -0.2% / prev 0.9%

Canada CPI m/m: exp -0.1% / prev -0.1% y/y: exp 2.9% / prev 2.8%

Technically, USDCAD is neutral. USDCAD moved higher to begin the week breaking above the 1.2950 level and extending up to 1.3010. After a correction to 1.2926 on Wednesday, USDCAD broke above 1.3010 and extended to 1.3070. Over the past three days, there have been about 8 attempts to break through the 1.3050 – 1.3070 resistance zone. The failure to close above this level opens the door for a retracement back towards 1.2950.

Topside targets to consider: 1.3050, 1.3070, 1.3110, 1.3180, 1.3200

Downside targets to consider: 1.3000, 1.2950, 1.2888, 1.2840, 1.2800

USDCAD 2018/2019 Forecast

2018 Q4

2019 Q1

2019 Q2

2019Q3

BMO

1.2843

1.2710

1.2650

1.2580

CIBC

1.3200

1.3100

1.2800

1.3100

National Bank

1.2700

1.2500

1.2500

1.2700

RBC

1.2900

1.2800

1.2700

1.2800

Scotiabank

1.2800

1.2500

1.2200

1.2200

TDCanada Trust

1.2820

1.2658

1.2658

1.2658

Average

1.2877

1.2711

1.25847

1.2673

GBPUSD 2018/2019 Forecast

2018 Q4

2019 Q1

2019 Q2

2019Q3

BMO

1.2766

1.2333

1.2700

1.3300

CIBC

1.3000

1.3500

1.3900

1.4200

National Bank

1.3100

1.3300

1.3200

1.3000

RBC

1.2000

1.2300

1.2500

1.2700

Scotiabank

1.3200

1.3200

1.3500

1.3700

TDCanada Trust

1.3100

1.3100

1.3200

1.3300

Average

1.2861

1.2956

1.3167

1.3367

GBPCAD 2018/2019 Forecast

2018 Q4

2019 Q1

2019 Q2

2019Q3

BMO

1.6395

1.5675

1.6066

1.6731

CIBC

1.7160

1.7685

1.7792

1.8602

National Bank

1.6637

1.6625

1.6500

1.6510

RBC

1.5480

1.5744

1.5875

1.6256

Scotiabank

1.6896

1.6500

1.6470

1.6714

TDCanada Trust

1.6794

1.6582

1.6709

1.6835

Average

1.6560

1.6469

1.6569

1.6941

EURUSD 2018/2019 Forecast

2018 Q4

2019 Q1

2019 Q2

2019Q3

BMO

1.1766

1.1666

1.1900

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

1.1700

1.1800

1.1900

1.2000

Average

1.1711

1.1844

1.2050

1.2283

EURCAD 2018/2019 Forecast

2018 Q4

2019 Q1

2019 Q2

2019Q3

BMO

1.5111

1.4827

1.5054

1.5348

CIBC

1.5576

1.5720

1.5744

1.6375

National Bank

1.4986

1.5000

1.5125

1.5494

RBC

1.4448

1.4592

1.4732

1.5104

Scotiabank

1.5360

1.5250

1.5250

1.5860

TD Canada Trust

1.4999

1.4936

1.5063

1.5190

Average

1.5080

1.5054

1.5161

1.5562

2018 Summary

Low

High

2018 Last

USDCAD

1.2253

1.3387

1.3021

EURCAD

1.4760

1.6140

1.5052

GBPCAD

1.6596

1.8292

1.7125

JPYCAD

0.01091

0.01239

0.01161

AUDCAD

0.9105

1.0243

0.9254

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

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