VBCE Weekly Foreign Exchange Wrap Up for Mar. 4 – Mar. 8, 2019 and Currency Forecast

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

The CAD lost ground to the USD and JPY while gaining against the EUR and GBP. The common theme this week was lowered growth forecasts and declining equity markets. The JPY and USD out-performed on risk aversion flows while the broader USD index (DXY) climbed to a 4 month high. The USD held strong despite 10 year yields falling back towards 1 year lows. USDCAD opened the week near 1.3275 and touched 1.3360 on Tuesday. A combination of poor Canadian trade data and a dovish Bank of Canada sent USDCAD up to 1.3457 – close to a 2 month high. The BOC acknowledged that "the slowdown in the fourth quarter was sharper and more broadly based. Consumer spending and the housing market were soft, despite strong growth in employment and labour income. Both exports and business investment also fell short of expectations. After growing at a pace of 1.8 per cent in 2018, it now appears that the economy will be weaker in the first half of 2019 than the Bank projected in January." Subsequent attempts higher stalled at 1.3468 on Thursday and 1.3466 on Friday. Canadian employment data surprised to the upside of the 2^nd consecutive month while U.S. headline jobs data missed sharply. USDCAD dropped to 1.3390 and closed the week near 1.3400.

Key Events for the week:

*USD climbs towards 2 month highs

*EUR climbs towards 2 month highs before falling to a 1 week low

*GBP climbs to 10 month highs before falling to a 1 week low

*JPY climbs towards 1 month highs

*AUD holds near 4 month lows

*Crude oil (WTI) flat on the week in a $54.80 - $57.40 range

*USD index (DXY) climbs from 96.40 up to 97.70 – near 4 month highs

*Australia central bank interest rate: 1.5% (exp 1.5% / prev 1.5%)

*China Caixin services PMI: 51.1 (exp 53.8 / prev 53.6)

*Eurozone retail sales y/y: 2.2% (exp 1.9% / prev 0.3%)

*U.S. ISM non-manufacturing PMI: 59.7 (exp 57.3 / prev 56.7)

*Australia GDP y/y Q4: 2.3% (exp 2.5% / prev 2.8%)

*U.S. ADP employment change: 183,000 (exp 189k / prev 300k)

*U.S. trade balance: -$59.8 billion (exp -$57.9 billion / prev -$50.3 billion)

*Canada Int'l merchandise trade: -$4.59 billion (exp -$2.80 billion / prev -$1.98 billion)

*Bank of Canada interest rate decision: 1.75% (exp 1.75% / prev 1.75%)

https://www.bankofcanada.ca/2019/03/fad-press-release-2019-03-06/

*Australia retail sales: 0.1% (exp 0.3% / prev -0.4%)

*Eurozone GDP y/y Q4: 1.1% (exp 1.2% / prev 1.2%)

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

*China trade balance: $4.12 billion (exp $26.38 billion / prev $39.16 billion)

*China exports: -20.7% (exp -4.8% / prev 9.1%)

*China Imports: -5.2% (exp -1.4% / prev -1.5%)

*U.S. non-farm payrolls: 20,000 (exp 180,000 / prev 311,000)

*U.S. unemployment rate: 3.8% (exp 3.9% / prev 4.0%)

*U.S. avg hourly earnings y/y: 3.4% (exp 3.3% / prev 3.1%)

*Canada net employment change: 55,900 (exp 0 / prev 66,800)

*Canada unemployment rate: 5.8% (exp 5.8% / prev 5.8%)

*Canada hourly wages: 2.25% (exp 1.70% / prev 1.82%)

*U.S. 10 year Treasury yields fall from 5 week highs to 1 year low (2.76% - 2.60%)

On Tap for Next week:

Mon Mar 11: German industrial production: -0.8% (exp 0.4% / prev 0.8%)

German trade balance: €18.5 billion (exp €21.0 billion / prev €19.9 billion)

U.S. retail sales m/m: 0.2% (exp 0% / prev -1.6%)

U.S. retail sales control group: 1.1% (exp 0.6% / prev -2.3%)

Tue Mar 12: UK manufacturing production y/y: -1.1% (exp -1.9% / prev -2.1%)

UK GDP m/m: 0.5% (exp 0.2% / prev -0.4%)

U.S. CPI m/m: 0.2% (exp 0.2% / prev 0%) y/y: 1.5% (exp 1.6% / prev 1.6%)

U.S. CPI ex food & energy m/m: 0.1% (exp 0.2% / prev 0.2%)

U.S. CPI ex food & energy y/y: 2.1% (exp 2.2% / prev 2.2%)

UK parliamentary vote on Brexit: PM May's deal defeated 242 – 391

Japan machinery orders y/y: exp -2.3% / prev 0.9%)

Wed Mar 13: Eurozone industrial production m/m: exp 1.0% / prev -0.9%

U.S. producer price index ex food & energy y/y: exp 2.6% / prev 2.6%

U.S. durable goods orders: exp -0.5% / prev 1.2%

Thur Mar 14: China retail sales y/y: exp 8.1% / prev 8.2%

China industrial production y/y: exp 5.5% / prev 5.7%

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

Fri Mar 15: Bank of Japan interest rate: exp -0.1% / prev -0.1%

Eurozone CPI y/y: exp 1.5% / prev 1.5%

Canada manufacturing shipments: exp 0.4% / prev -1.3%

U.S. industrial production: exp 0.4% / prev -0.6%

Technically, USDCAD is neutral. During the previous week, USDCAD climbed from 1.3112 up to 1.3237 only to fall back to 1.3130. The trend changed abruptly on Friday with USDCAD surging to 1.3306 (as a result of a very weak Q4 GDP result for Canada), setting the stage for further upside. The uptrend did continue but stalled at 1.3468. A 2^nd attempt failed at 1.3466 and the pairing dropped to 1.3390 (on the back of a 2^nd consecutive strong Canadian jobs report). Resistance appears to be building near 1.3440 and the uptrend appears exhausted. A break below 1.3390 will likely see a return towards the March lows of 1.3130.

Topside targets to consider: 1.3460, 1.3515, 1.3570, 1.3600

Downside targets to consider: 1.3390, 1.3300, 1.3240, 1.3210

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