VBCE Weekly Foreign Exchange Wrap Up for Mar. 18 – Mar. 22, 2019 and Currency Forecasts

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

The CAD enjoyed a good start to the week reaching multi-week highs against most currencies. The TSX reached 6 month highs while oil prices gained 3% early in the week to send USDCAD from 1.3368 down to 1.3251 – a 3 week low. On Wednesday, USDCAD dropped from 1.3348 down to 1.3257 as the USD broadly weakened after the U.S. Fed held interest rates steady at 2.5% along with notable lowered economic projections. The Fed now anticipates just a single rate hike over the next 2 years after having raised rates 4 times in 2018. U.S. yields dropped sharply towards 15 month lows while commodities and equities climbed on "dovish" Fed statement and forecasts. USDCAD tested 1.3276 on Thursday before climbing to 1.3400 as the USD flows from Wednesday were largely reversed. USD gains continued Friday taking USDCAD from 1.3350 up to 1.3430. Canadian retail sales missed estimates while prior data was revised even lower. Canadian inflation data did move higher driven by higher energy prices. Overall, the CAD lost substantial ground during Thursday and Friday and ends up as the worst performing currency on the week behind the GBP. The JPY was the best performing currency this week propelled by the late risk-off attitude in the markets.

Key Events for the week:

*USD falls to 3 week low before climbing towards 2 week high

*EUR falls to 3 week low before climbing towards 2 month high

*GBP falls to 1 month low before revisiting 11 month high

*JPY climbs from 2 week low towards 2 month high

*AUD climbs towards 6 week high

*Crude oil gains 3.5% towards 5m highs before falling back – range $58.33 - $60.43

*USD index (DXY) declines towards 6 week lows - from 96.63 down to 95.74

*Japan industrial production: 0.3% (exp 0% / prev 0%)

*UK avg earnings excluding bonus: 3.4% (exp 3.4% / prev 3.5%)

*Germany ZEW survey – economic sentiment: -3.6 (exp -11.0 / prev -13.4)

*UK CPI y/y: 1.9% (exp 1.8% / prev 1.8%)

*EIA crude oil stocks change: -9.589 million barrels (exp 0.309 m / prev -3.862 m)

*U.S. Fed interest rate: 2.5% (exp 2.5% / prev 2.5%)

*U.S. Fed statement and economic projections: https://www.federalreserve.gov/newsevents/pressreleases/monetary20190320a.htm

https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20190320.pdf

*Australia employment change: 4,600 (exp 14,000 / prev 39,100)

*Australia unemployment rate: 4.9% (exp 5.0% / prev 5.0%)

*UK retail sales m/m: 0.4% (exp -0.4% / prev 0.9%) y/y: 4% (exp 3.3% / prev 4.1%)

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

*Japan National CPI ex food & energy y/y: 0.4% (exp 0.3% / prev 0.4%)

*Germany Markit manufacturing PMI: 44.7 (exp 48.0 / prev 47.6)

*Eurozone Markit manufacturing PMI: 47.6 (exp 49.5 / prev 49.3)

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

*Canada retail sales ex autos: 0.1% (exp 0.2% / prev -0.8%)

*Canada CPI m/m: 0.7% (exp 0.6% / prev 0.1%) y/y: 1.5% (exp 1.4% / prev 1.4%)

*Bank of Canada CPI core m/m:0.7%(exp0.1%/prev0.3%)y/y:1.5%(exp 1.2%/prev 1.5%)

*U.S. 10 year Treasury yields fall towards 15 month low (2.63% - 2.41%)

On Tap for Next week:

Wed Mar 27: U.S. trade balance: exp -$57.0 billion / prev -$59.8 billion

Canada Int'l merchandise trade: exp -$3.50 billion / prev -$4.59 billion

Thur Mar 28: U.S. GDP Q4 annualized: exp 2.4% / prev 2.6%

Japan Tokyo CPI ex fresh food y/y: exp 1.1% / prev 1.1%

Japan unemployment rate: exp 2.5% / prev 2.5%

Japan industrial production y/y: exp -0.1% / prev 0.3%

Japan retail trade y/y: exp 1.3% / prev 0.6%

Fri Mar 29: Germany retail sales m/m: exp -0.5% / prev 3.3%

Germany unemployment rate: exp 4.9% / prev 5.0%

UK GDP Q4 y/y: exp 1.3% / prev 1.3%

Canada GDP (Jan): prev -0.1%

Technically, USDCAD is neutral. The pairing has had an up and down month thus far initially climbing from 1.3130 up to 1.3465 during the first half of March. The 1.3420 -1.3465 area was tested numerous times between Mar. 6 – 12 with the trend abruptly changing direction. After testing the 1.3250/80 area Tuesday, Wednesday, and again Thursday, USDCAD has moved higher. Rallies stalled at 1.3400 on Thursday and at 1.3430 on Friday. For a change in trend, USDCAD will likely need sustained trade / a daily close below 1.3250 or above 1.3460.

Topside targets to consider: 1.3430, 1.3460, 1.3515, 1.3570

Downside targets to consider: 1.3350, 1.3310, 1.3250, 1.3210