VBCE Weekly Foreign Exchange Wrap Up for Jan. 21 – Jan. 25, 2019 and 2019 Currency Forecast

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

The CAD was the best performing currency behind the GBP this week. The bulk of the gains came during Friday's session. The main catalysts were positive market sentiment (which generally boosts the value of the commodity currencies), oil prices testing 2 month highs, and a broadly weaker USD. The U.S. government shutdown entered its 34th day this week – the longest shutdown on record. Several key U.S. economic releases were delayed while the shutdown will likely have a slight negative effect on first quarter GDP. The CAD initially weakened earlier in the week on negative market risk sentiment. There were some global growth concerns from a slowing China economy. There is the risk that U.S. tariffs and prolonged U.S. / China trade negotiations will further dent China's economy. Also, there were some weaker than expected corporate earnings with several companies offering a reduced outlook citing a slowing economy in China. USDCAD tested the 1.3350 – 80 range multiple times (3week high) during the week before moving sharply lower on Friday and closing near 1.3210 (near 2 month low).

Weekly Open

Low

High

Weekly Close

USDCAD

1.3270

1.3206

1.3375

1.3206

EURCAD

1.5090

1.5061

1.5253

1.5068

GBPCAD

1.7060

1.7045

1.7520

1.7435

JPYCAD

0.01209

0.01205

0.01224

0.01205

AUDCAD

0.9506

0.9448

0.9555

0.9473

Key Events for the week:

*USDCAD climbs to a 3 week high before falling back towards 2 month lows

*EUR climbs to a 2 week high before falling towards a 2 month low

*GBP surges towards a 7 month high

*JPY holds near 1 month lows

*AUD holds near 3 month lows

*WTI oil holds near 2 month highs (range $51.92 - $54.50)

*USD index (DXY) falls towards 2 week low – from 96.68 down to 95.70

* China retail sales y/y: 8.2% (exp 8.2% / prev 8.1%)

*China GDP Q4 y/y: 6.4% (exp 6.4% / prev 6.5%)

*UK average earnings including bonus: 3.4% (exp 3.3% / prev 3.3%)

*Canada manufacturing shipments: -1.4% (exp -0.9% / prev -0.1%)

*Japan merchandise trade balance: -¥55.3 billion (exp -¥29.5billion / prev -¥737.3billion)

*Japan exports y/y: -3.8% (exp -1.9% / prev 0.1%)

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

*Canada retail sales:-0.9%(exp -0.6%/prev 0.2%) ex autos-0.6%(exp -0.4%/prev -0.2%)

*Australian employment change: 21,600 (exp 16,500 / prev 37,000)

*ECB interest rate decision: 0% (exp 0% / prev 0%)

*U.S. 10 year Treasury yields hold near 1 month highs (2.70% - 2.77%)

On Tap for Next week:


Mon Jan 28: no key economic data

Tue Jan 29: Japan retail trade y/y: exp 0.8% / prev 1.4%

Wed Jan 30: Australia CPI Q4 y/y: exp 1.7% / prev 1.9%

Germany CPI y/y harmonized: exp 1.7% / prev 1.7%

U.S. ADP employment change: exp 175,000 / prev 271,000

U.S. Fed interest rate decision: exp 2.5% / prev 2.5%

Thur Jan 31: Australian interest rate statement

Germany retail sales: exp -0.6% / prev 1.4%

Eurozone GDP Q4 y/y: exp 1.2% / prev 1.6%

Eurozone unemployment rate: exp 7.9% / prev 7.9%

Canada GDP (Nov): exp -0.1% / prev 0.3%

Japan unemployment rate: exp 2.4% / prev 2.5%

Fri Feb 1: China Caixin manufacturing PMI: exp 49.5 / prev 49.7

U.S. non-farm payrolls: exp 166,000 / prev 312,000

U.S. unemployment rate: exp 3.9% / prev 3.9%

U.S. average hourly earnings y/y: exp 3.2% / prev 3.2%

U.S. ISM manufacturing PMI: exp 54.2 / prev 54.3

Technically, USDCAD is neutral / bearish. Since testing the 1.3182 level on Jan. 9th and 11th (6 week lows), there has been a corrective move higher. This move has stalled in the 1.3360 – 1.3380 range on subsequent tests on Jan. 23, 24th, and 25th. There was a large move lower on Friday (from 1.3360 down to 1.3206) effectively closing the week near 2 month lows.

Topside targets to consider: 1.3280, 1.3320, 1.3370, 1.3420

Downside targets to consider: 1.3205, 1.3182, 1.3130, 1.3050

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

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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.