VBCE Weekly Foreign Exchange Wrap Up and Forecast for Oct. 22 – Oct. 26, 2018

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

The CAD was the best performing currency through mid-week before losing ground to the JPY and finishing the week near unchanged against the USD. The Bank of Canada was the primary catalyst behind the CAD strength Wednesday morning – a move that saw USDCAD fall from 1.3100 down to 1.2968. The bank raised rates by 0.25% while changing the language in its policy statement to a more hawkish tone and effectively opening the door for a faster pace of future interest rate hikes. Trade below 1.30 was short-lived as global equity markets sold off heavily sending USDCAD back up to 1.3050. Negative risk sentiment prevailed for the rest of the week taking USDCAD up to 1.3160 Friday morning – just shy of the 1.3225 September high. U.S. GDP (Q3) came in stronger than expected although the price index measures that the U.S. Fed gauges to track inflation were surprisingly weak. The USD broadly weakened during the North American session taking USDCAD back down towards opening levels at 1.3070 and closed the week unchanged. The JPY was the best performer on safe-haven flows as equity indices posted significant losses this week. The TSX dropped towards 2 year lows while the DJIA fell to 4 month lows. The EUR and GBP were the worst performing currencies on continued uncertainties surrounding Brexit and Italy's debit concerns.

Weekly Open

Low

High

Weekly Close

USDCAD

1.3095

1.2968

1.3159

1.3099

EURCAD

1.5080

1.4776

1.5115

1.4933

GBPCAD

1.7120

1.6721

1.7141

1.6802

JPYCAD

0.01164

0.01151

0.01176

0.01171

AUDCAD

0.9320

0.9176

0.9340

0.9277

Key Events for the week:

*USDCAD climbs towards 2 month high after falling to one week low

*USD index climbs towards 16 month highs near 97.00

*EUR and GBP near 1 year lows, JPY near 6 week highs, AUD near 8 year lows

*WTI oil falls 2% towards 2 month low (range $65.73 - $69.82)

*Canada wholesale sales: -0.1% (exp 0% / prev 1.1%)

*Bank of Canada interest rate: 1.75% (exp 1.75% / prev 1.50%) https://www.bankofcanada.ca/2018/10/fad-press-release-2018-10-24/

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

*U.S. durable goods orders: 0.8% (exp -0.9% / prev 4.6%)

*Japan Tokyo CPI ex fresh food y/y: (exp 0.9% / prev 1.0%)

*U.S. GDP Q3 annualized: exp 3.3% / prev 4.2%

*U.S. core personal consumption expenditure Q3: (exp 2.0% / prev 2.1%)

*U.S. 10 year Treasury yields fall to 1 month lows – from 3.20% down to 3.05%

On Tap for Next week:


Oct 29: Japan retail trade y/y: exp 1.6% / prev 2.7%

Japan unemployment rate: exp 2.4% / prev 2.4%

UK Budget Report

U.S. core personal consumption expenditure price index y/y: exp 2.0% prev 2.0%

Oct 30: Germany unemployment change: exp -12,000 / prev -23,000

Germany unemployment rate: exp 5.1% / prev 5.1%

Eurozone GDP Q3 y/y: exp 1.8% / prev 2.1%

Germany harmonized CPI y/y: exp 2.3% / prev 2.2%

Oct 31: Australia CPI Q3 y/y: exp 1.9% / prev 2.1%

Bank of Japan interest rate decision: exp -0.1% / prev -0.1%

Germany retail sales: exp 0.5% / prev -0.1%

Eurozone CPI y/y: exp 2.2% / prev 2.1% Core: exp 1.0% / prev 0.9%

Canada GDP (August): exp / prev 0.2%

U.S. ADP employment change: exp 189,000 / prev 230,000

Nov 1: Australia trade balance: exp $1,700 million / prev $1,604 million

Bank of England interest rate decision: exp 0.75% / prev 0.75%

U.S. ISM manufacturing PMI: exp 59.0 / prev 59.8

Nov 2: Australia retail sales: exp 0.3% / prev 0.3%

Canada net employment change: exp 10,000 / prev 63,300

Canada unemployment rate: exp 5.9% / prev 5.9%

Canada international merchandise trade: exp $0.15 billion / prev $0.53 billion

U.S. non-farm payrolls: exp 190,000 / prev 134,000

U.S. unemployment rate: exp 3.7% / prev 3.7%

U.S. average hourly earnings m/m: exp 0.3%/prev 0.3% y/y: exp 3.1%/prev 2.8%

U.S. trade balance: exp -$53.6 billion / prev -$53.2 billion

Technically, USDCAD is neutral. The pairing initially failed to push beyond last week's 1.3130 high on consecutive tests Monday and Tuesday. The hawkish Bank of Canada statement Wednesday morning caught the market by surprise sending USDCAD down to 1.2968 – a 1 week low. The bearish sentiment was short-lived with risk aversion flows forcing USDCAD up to 1.3160 on Friday. The pairing failed to hold the break of 1.3130 and fell back to 1.3070 - again closing the week just below the 1.3110 resistance level. Markets will now look to several top-tier Canadian data releases (GDP, employment, and trade) for direction. USDCAD has largely remained confined to a 1.2780 – 1.3225 range over the past few months and a break out of this range is likely needed for a longer-term trend to develop.

Topside targets to consider: 1.3150, 1.3180, 1.3200, 1.3225

Downside targets to consider: 1.3065, 1.3015, 1.2970, 1.2920

USDCAD 2018/2019 Forecast

2018Q4

2019 Q1

2019 Q2

2019Q3

BMO

1.2843

1.2710

1.2650

1.2580

CIBC

1.2800

1.2900

1.3100

1.3200

National Bank

1.2700

1.2500

1.2500

1.2700

RBC

1.2900

1.2800

1.2700

1.2800

Scotiabank

1.2800

1.2500

1.2500

1.2200

TDCanada Trust

1.2800

1.2700

1.2700

1.2600

Average

1.2807

1.2685

1.26917

1.2680

GBPUSD 2018/2019 Forecast

2018Q4

2019 Q1

2019 Q2

2019Q3

BMO

1.2766

1.2333

1.2700

1.3300

CIBC

1.3300

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

1.3200

1.3200

1.3300

1.3400

Average

1.2928

1.2972

1.3183

1.3383

GBPCAD 2018/2019 Forecast

2018Q4

2019 Q1

2019 Q2

2019 3

BMO

1.6395

1.5675

1.6066

1.6731

CIBC

1.7024

1.7415

1.8209

1.8744

National Bank

1.6637

1.6625

1.6500

1.6510

RBC

1.5480

1.5744

1.5875

1.6256

Scotiabank

1.6896

1.6500

1.6875

1.6714

TDCanada Trust

1.6896

1.6764

1.6891

1.6884

Average

1.6555

1.6454

1.6736

1.6973

EURUSD 2018/2019 Forecast

2018Q4

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

1.2400

1.2600

TD Canada Trust

1.1700

1.1800

1.1900

1.2000

Average

1.1711

1.1844

1.2033

1.2217

EURCAD 2018/2019 Forecast

2018Q4

2019 Q1

2019 Q2

2019Q3

BMO

1.5111

1.4827

1.5054

1.5348

CIBC

1.5104

1.5480

1.6113

1.6500

National Bank

1.4986

1.5000

1.5125

1.5494

RBC

1.4448

1.4592

1.4732

1.5104

Scotiabank

1.5360

1.5250

1.5500

1.5372

TD Canada Trust

1.4976

1.4986

1.5113

1.5120

Average

1.4998

1.5023

1.5273

1.5490

2018 Summary

Low

High

2018 Last

USDCAD

1.2253

1.3387

1.3099

EURCAD

1.4760

1.6140

1.4933

GBPCAD

1.6596

1.8292

1.6802

JPYCAD

0.01091

0.01239

0.01171

AUDCAD

0.9105

1.0243

0.9277

Sources: Reuters, Bloomberg, FXStreet, RBC Capital Markets, Bank of Canada, U.S. Federal Reserve, CNBC, Forexlive, CME Group, BNNThe CAD was the best performing currency through mid-week before losing ground to the JPY and finishing the week near unchanged against the USD. The Bank of Canada was the primary catalyst behind the CAD strength Wednesday morning – a move that saw USDCAD fall from 1.3100 down to 1.2968. The bank raised rates by 0.25% while changing the language in its policy statement to a more hawkish tone and effectively opening the door for a faster pace of future interest rate hikes. Trade below 1.30 was short-lived as global equity markets sold off heavily sending USDCAD back up to 1.3050. Negative risk sentiment prevailed for the rest of the week taking USDCAD up to 1.3160 Friday morning – just shy of the 1.3225 September high. U.S. GDP (Q3) came in stronger than expected although the price index measures that the U.S. Fed gauges to track inflation were surprisingly weak. The USD broadly weakened during the North American session taking USDCAD back down towards opening levels at 1.3070 and closed the week unchanged. The JPY was the best performer on safe-haven flows as equity indices posted significant losses this week. The TSX dropped towards 2 year lows while the DJIA fell to 4 month lows. The EUR and GBP were the worst performing currencies on continued uncertainties surrounding Brexit and Italy's debit concerns.

Weekly Open

Low

High

Weekly Close

USDCAD

1.3095

1.2968

1.3159

1.3099

EURCAD

1.5080

1.4776

1.5115

1.4933

GBPCAD

1.7120

1.6721

1.7141

1.6802

JPYCAD

0.01164

0.01151

0.01176

0.01171

AUDCAD

0.9320

0.9176

0.9340

0.9277

Key Events for the week:

*USDCAD climbs towards 2 month high after falling to one week low

*USD index climbs towards 16 month highs near 97.00

*EUR and GBP near 1 year lows, JPY near 6 week highs, AUD near 8 year lows

*WTI oil falls 2% towards 2 month low (range $65.73 - $69.82)

*Canada wholesale sales: -0.1% (exp 0% / prev 1.1%)

*Bank of Canada interest rate: 1.75% (exp 1.75% / prev 1.50%) https://www.bankofcanada.ca/2018/10/fad-press-release-2018-10-24/

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

*U.S. durable goods orders: 0.8% (exp -0.9% / prev 4.6%)

*Japan Tokyo CPI ex fresh food y/y: (exp 0.9% / prev 1.0%)

*U.S. GDP Q3 annualized: exp 3.3% / prev 4.2%

*U.S. core personal consumption expenditure Q3: (exp 2.0% / prev 2.1%)

*U.S. 10 year Treasury yields fall to 1 month lows – from 3.20% down to 3.05%

On Tap for Next week:

Oct 29: Japan retail trade y/y: exp 1.6% / prev 2.7%

Japan unemployment rate: exp 2.4% / prev 2.4%

UK Budget Report

U.S. core personal consumption expenditure price index y/y: exp 2.0% prev 2.0%

Oct 30: Germany unemployment change: exp -12,000 / prev -23,000

Germany unemployment rate: exp 5.1% / prev 5.1%

Eurozone GDP Q3 y/y: exp 1.8% / prev 2.1%

Germany harmonized CPI y/y: exp 2.3% / prev 2.2%

Oct 31: Australia CPI Q3 y/y: exp 1.9% / prev 2.1%

Bank of Japan interest rate decision: exp -0.1% / prev -0.1%

Germany retail sales: exp 0.5% / prev -0.1%

Eurozone CPI y/y: exp 2.2% / prev 2.1% Core: exp 1.0% / prev 0.9%

Canada GDP (August): exp / prev 0.2%

U.S. ADP employment change: exp 189,000 / prev 230,000

Nov 1: Australia trade balance: exp $1,700 million / prev $1,604 million

Bank of England interest rate decision: exp 0.75% / prev 0.75%

U.S. ISM manufacturing PMI: exp 59.0 / prev 59.8

Nov 2: Australia retail sales: exp 0.3% / prev 0.3%

Canada net employment change: exp 10,000 / prev 63,300

Canada unemployment rate: exp 5.9% / prev 5.9%

Canada international merchandise trade: exp $0.15 billion / prev $0.53 billion

U.S. non-farm payrolls: exp 190,000 / prev 134,000

U.S. unemployment rate: exp 3.7% / prev 3.7%

U.S. average hourly earnings m/m: exp 0.3%/prev 0.3% y/y: exp 3.1%/prev 2.8%

U.S. trade balance: exp -$53.6 billion / prev -$53.2 billion

Technically, USDCAD is neutral. The pairing initially failed to push beyond last week's 1.3130 high on consecutive tests Monday and Tuesday. The hawkish Bank of Canada statement Wednesday morning caught the market by surprise sending USDCAD down to 1.2968 – a 1 week low. The bearish sentiment was short-lived with risk aversion flows forcing USDCAD up to 1.3160 on Friday. The pairing failed to hold the break of 1.3130 and fell back to 1.3070 - again closing the week just below the 1.3110 resistance level. Markets will now look to several top-tier Canadian data releases (GDP, employment, and trade) for direction. USDCAD has largely remained confined to a 1.2780 – 1.3225 range over the past few months and a break out of this range is likely needed for a longer-term trend to develop.

Topside targets to consider: 1.3150, 1.3180, 1.3200, 1.3225

Downside targets to consider: 1.3065, 1.3015, 1.2970, 1.2920

USDCAD 2018/2019 Forecast

2018Q4

2019 Q1

2019 Q2

2019Q3

BMO

1.2843

1.2710

1.2650

1.2580

CIBC

1.2800

1.2900

1.3100

1.3200

National Bank

1.2700

1.2500

1.2500

1.2700

RBC

1.2900

1.2800

1.2700

1.2800

Scotiabank

1.2800

1.2500

1.2500

1.2200

TDCanada Trust

1.2800

1.2700

1.2700

1.2600

Average

1.2807

1.2685

1.26917

1.2680

GBPUSD 2018/2019 Forecast

2018Q4

2019 Q1

2019 Q2

2019Q3

BMO

1.2766

1.2333

1.2700

1.3300

CIBC

1.3300

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

1.3200

1.3200

1.3300

1.3400

Average

1.2928

1.2972

1.3183

1.3383

GBPCAD 2018/2019 Forecast

2018Q4

2019 Q1

2019 Q2

2019 3

BMO

1.6395

1.5675

1.6066

1.6731

CIBC

1.7024

1.7415

1.8209

1.8744

National Bank

1.6637

1.6625

1.6500

1.6510

RBC

1.5480

1.5744

1.5875

1.6256

Scotiabank

1.6896

1.6500

1.6875

1.6714

TDCanada Trust

1.6896

1.6764

1.6891

1.6884

Average

1.6555

1.6454

1.6736

1.6973

EURUSD 2018/2019 Forecast

2018Q4

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

1.2400

1.2600

TD Canada Trust

1.1700

1.1800

1.1900

1.2000

Average

1.1711

1.1844

1.2033

1.2217

EURCAD 2018/2019 Forecast

2018Q4

2019 Q1

2019 Q2

2019Q3

BMO

1.5111

1.4827

1.5054

1.5348

CIBC

1.5104

1.5480

1.6113

1.6500

National Bank

1.4986

1.5000

1.5125

1.5494

RBC

1.4448

1.4592

1.4732

1.5104

Scotiabank

1.5360

1.5250

1.5500

1.5372

TD Canada Trust

1.4976

1.4986

1.5113

1.5120

Average

1.4998

1.5023

1.5273

1.5490

2018 Summary

Low

High

2018 Last

USDCAD

1.2253

1.3387

1.3099

EURCAD

1.4760

1.6140

1.4933

GBPCAD

1.6596

1.8292

1.6802

JPYCAD

0.01091

0.01239

0.01171

AUDCAD

0.9105

1.0243

0.9277

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.