VBCE Weekly Foreign Exchange Wrap Up for April 8 – 12, 2019

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

The CAD gained against the USD, JPY, and GBP this week while losing a bit of ground to the EUR and AUD. For the second week in a row, the major currencies were confined to a narrow range for most of the week before extending gains against the USD and JPY on Friday which saw the USD index fall to a 3 week low. USDCAD moved lower early in the week from 1.3390 down to 1.3284 (near a 6 week low) on the back of higher oil prices (WTI crude touched a new 5 month high @ $64.70). The move lower came despite softer equity markets on concerns the U.S. would impose tariffs on the European Union. In addition, the IMF revised its global growth forecast from 3.5% down to 3.3% - the 3^rd negative revision over the past 6 months. The move below 1.3300 did not sustain and the pairing moved back up to 1.3360 ahead of Wednesday's U.S. CPI inflation data. The headline beat expectations while the core data was a touch soft. USDCAD dropped back down to 1.3306 as the USD broadly weakened ahead of the U.S. Fed minutes. USD selling ceased after the Fed was not as dovish as the market expected and the USD broadly recovered during Thursday's session taking USDCAD up to a weekly high of 1.3398. Oil prices sold off after failing to break above the $64.70 level for the 3^rd time this week. The trend abruptly changed again on Friday as much stronger than expected trade data out of China sent global markets and oil prices higher / the USD and JPY lower. USDCAD dropped from 1.3380 down to 1.3312, although oil prices did fail for a 4^th time to break the $64.70 level. The TSX and DJIA both traded near historical highs.

Key Events for the week:

*USDCAD continues to hold 1.3300 – 1.3400 range / closes near 3 week low

*EURCAD rebounds from 5 month low and climbs towards a 2 week high

*GBPCAD rebounds from 6 week low

*JPYCAD falls towards 4 month low

*AUDCAD climbs towards 4 month high

*Crude oil gains as much as 2.5% - new 5 month high – range $63.17 - $64.70

*USD index (DXY) falls towards a 3 week low – range 96.75 – 97.38

*U.S. 10 year Treasury yields rebound from 15 month low (2.46% - 2.57%)

*Germany trade balance: €18.7 billion (exp €17 billion / prev €18.6 billion)

*Japan machinery orders m/m 1.8% exp2.5% prev -5.4% y/y: -5.5%exp -5.2%prev -2.9%

*UK industrial production m/m: 0.6% exp0.1% prev 0.7% y/y: 0.1%exp -0.9%prev-0.3%

*UK GDP (Feb): 0.2% (exp 0% / prev 0.5%)

*European Central Bank interest rate: 0% (exp 0% / prev 0%) https://www.ecb.europa.eu/press/pressconf/2019/html/ecb.is190410~c27197866f.en.html

*U.S. CPI m/m: 0.4% (exp 0.3% / prev 0.2%) y/y: 1.9% (exp 1.8% / prev 1.5%)

*CPI ex food/energy m/m: 0.1% (0.2% / prev 0.1%) y/y: 2.0% (exp 2.1% / prev 2.1%)

*China CPI y/y: 2.3% (exp 2.4% / prev 1.5%)

*Germany CPI harmonized y/y: 1.4% (exp 1.4% / prev 1.4%)

*U.S. producer price index m/m: 0.6% exp 0.3%prev 0.1% y/y 2.2%exp 1.9% prev 1.9%

*U.S. PPI ex food&energy m/m: 0.3% exp 0.2%prev 0.1% y/y:2.4% exp 2.4% prev 2.5%

*China exports y/y: 14.2% (exp 7.3% / prev -20.8%)

*China trade balance: $32.64 billion (exp $7.05 billion / prev $4.08 billion)

*Eurozone industrial production m/m: -0.2% (exp -0.6% / prev 1.9%)

On Tap for Next week:

Mon Apr. 15: Bank of Canada business outlook survey

Tue Apr. 16: UK unemployment rate: exp 4.0% / prev 3.9%

UK avg. earnings ex bonus: exp 3.4% / prev 3.4%

Germany ZEW Survey – economic sentiment: exp -11.0 / prev -3.6

Canada manufacturing shipments: exp 0.4% / prev 1%

U.S. industrial production: exp 0.3% / prev 0%

Wed Apr. 17: China retail sales y/y: exp 8.4% / prev 8.2%

China industrial production: exp 5.9% / prev 5.3%

China GDP Q1 y/y: exp 6.3% / prev 6.4%

UK CPI m/m: exp 0% / prev 0.5% y/y: exp 1.6% / prev 1.9%

Eurozone CPI core m/m: exp 0.3% / prev 0.3% y/y: exp 0.8% / prev 0.8%

U.S. trade balance: exp -$53.7 billion / prev -$51.1 billion

Canada Int'l merchandise trade: exp -$3.5 billion / prev -$4.25 billion

Canada CPI m/m: exp 0.6% / prev 0.7% y/y: exp 1.3% / prev 1.5%

Bank of Canada core CPI m/m: prev 0.7% y/y: prev 1.5%

Thur Apr. 18: Australia employment change: exp 12,000 / prev 4,600

Australia unemployment rate: exp 5.0% / prev 4.9%

Germany Markit manufacturing PMI: exp 45.0 / prev 44.1

Eurozone Markit manufacturing PMI: exp 47.9 / prev 47.5

UK retail sales m/m: exp -0.2% / prev 0.4% y/y: exp 4.6% / prev 4.0%

U.S. retail sales: exp 0.7% / prev -0.2%

U.S. retail sales control group: exp 0.4% / prev -0.2%

Canada retail sales: prev -0.3%

Canada retail sales ex autos: exp 0.2% / prev 0.1%

Japan national CPI ex food & energy y/y: prev 0.4%

Fri Apr. 19: Good Friday

Technically, USDCAD is neutral / bearish. The pairing opened the week near the recent resistance Zone (1.3390 – 1.3410) and moved back below the 1.3370 level (weekly pivot / prior week's broken resistance level now turned into support. The pairing managed to break below a cluster of support in the 1.3295 – 1.3310 area with the decline stalling at 1.3284 – a 3 week low. However, Tuesday's move lower could not be sustained and the pairing remained confined to a 1.3307 – 1.3397 range for the balance of the week. USDCAD failed to sustain trade above 1.3390 on a few occasions Thursday and Friday and pairing closes the week back down near the 1.3300 level. Given the USD sell-off on Friday (the USD index DXY touched a 3 week low), downward momentum could continue in the week ahead. 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: 1.3340, 1.3370, 1.3400, 1.3420, 1.3460

Downside targets to consider: 1.3307, 1.3284, 1.3250, 1.3210, 1.3130

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