VBCE Weekly Foreign Exchange Wrap Up for May 6 – 10, 2019 and Currency Forecast

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

The JPY was the top performing currency this week while the GBP was the weakest. The USD also saw broad declines at various points during the week. USDCAD initially gapped higher from 1.3420 up to 1.3465 at the opening in response to the risk aversion flows / stock market sell-off from Trump's weekend tweet. He threatened to raise tariffs on $200 billion worth of Chinese goods from 10% up to 25%. He also mentioned that 25% tariffs on an additional $325 billion worth of goods could follow shortly. Reports suggest that the U.S. and China were close to a trade agreement when China retreated and wanted to re-negotiate. USDCAD climbed to 1.3495 before reversing course and falling to 1.3410 in early Tuesday trade. Equity markets had pared back significant losses during Monday's session while oil prices jumped 5% after initially falling 3%. The rest of the week remained volatile with large swings as reports of trade war escalation were offset with trade deal optimism as the Chinese trade Delegation made its way to Washington. The tariffs officially went into effect at 9:00pm Thursday night and global equity markets saw large declines in early Friday trade. Reports that some trade-deal progress was made saw markets pare earlier losses while the USD broadly declined. USDCAD had been testing the 1.3480 – 1.3505 resistance area for much of the week but declined to test the May lows near 1.3380 on Friday. Canada added a record number of jobs in April – 106,500 of which 73,000 were full-time. The unemployment rate declined further while wages gained. U.S. inflation data came in slightly weaker than expected. The move below 1.3400 did not last and USDCAD moved back to hold a 1.3415 – 1.3440 range for the balance of Friday's session.

Weekly Open

Low

High

Weekly Close

USDCAD

1.3460

1.3380

1.3505

1.3410

EURCAD

1.5045

1.5032

1.5182

1.5068

GBPCAD

1.7700

1.7426

1.7730

1.7434

JPYCAD

0.01215

0.01210

0.01232

0.01219

AUDCAD

0.9400

0.9365

0.9458

0.9384

Key Events for the week:

*USDCAD falls from near 4 month highs towards 3 week low

*EURCAD climbs towards 4 month high before falling back towards 1 week low

*EURUSD rebounds from 2 year lows and climbs towards a 3 week high

*GBPCAD declines towards a 2 week low / GBPUSD falls from 1 month high towards a 2 week low

*JPYCAD climbs towards a 4 month high / USDJPY falls towards 3 month low

*AUDCAD holds near 6 month low / AUDUSD near 10 year lows

*Crude oil holds near 6 week low: $60.14 - $63.02

*USD index (DXY) holds near 3 week low: range 97.13 – 97.74

*U.S. 10 year Treasury yields decline towards 16 month lows: range 2.42% - 2.50%

*China Caixin services PMI: 54.5 (exp 52.8 / prev 54.4)

*Eurozone retail sales y/y: 1.9% (exp 1.8% / prev 3.0%)

*Eurozone Markit PMI composite: 51.5 (exp 51.3 / prev 51.6)

*Australia retail sales: 0.3% (exp 0.2% / prev 0.9%)

*RBA (Australia) interest rate: 1.5% (exp 1.50% / prev 1.50%) https://www.rba.gov.au/media-releases/2019/mr-19-11.html

*Canada Ivey PMI: 55.9 (exp 53.0 / prev 54.3)

*China trade balance: $13.84 billion (exp $35.00 billion / prev $32.67 billion)

*China exports y/y: -2.7% (exp 2.3% / prev 14.2%)

*Germany industrial production m/m: 0.5% (exp -0.5% / prev 0.4%)

*China CPI m/m: 0.1% (exp 0.1% / prev -0.4%) y/y: 2.5% (exp 2.5% / prev 2.3%)

*Canada Int'l merchandise trade: -$3.21 billion (exp -$2.45 billion / prev -$3.42 billion)

*U.S. producer price index m/m:0.2%(exp0.2%/prev0.6%)y/y: 2.2%(exp2.3%/prev2.2%)

*U.S. PPI ex food & energy m/m:0.1% exp 0.2% prev 0.3% y/y: 2.4%exp2.5%prev 2.4%

*U.S. trade balance: -$50.0 billion (exp -$50.2 billion / prev -$49.3 billion)

*Germany trade balance: €20.0 billion (exp €18.2 billion / prev €18.7 billion)

*UK GDP Q1 y/y: 1.8% (exp 1.8% / prev 1.4%)

*UK manufacturing production m:0.9% exp 0.2%/prev1% y/y: 2.6% exp 1.3%/prev 1.2%

*Canada net employment change: 106,500 (exp 10,000 / prev -7,200)

*Canada unemployment rate: 5.7% (exp 5.8% / prev 5.8%)

*Canada avg hourly earnings y/y: 2.60% (prev 2.32%)

*U.S. CPI m/m: 0.3% (exp 0.4% / prev 0.4%) y/y: 2.0% (exp 2.1% / prev 1.9%)

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

On Tap for Next week:

Tue May 14: Germany CPI y/y harmonized: exp 2.1% / prev 2.1%

UK unemployment rate: exp 3.9% / prev 3.9%

UK avg earnings ex bonus: exp 3.3% / prev 3.4%

Eurozone industrial production y/y: exp -0.8% / prev -0.3%

Germany ZEW Survey – economic sentiment: exp 5.0 / prev 3.1

Eurozone ZEW Survey – economic sentiment: exp 1.0 / prev 4.5

Wed May 15: China retail sales y/y: exp 8.6% / prev 8.7%

China industrial production y/y: exp 6.5% / prev 8.5%

Germany GDP qoq Q1: exp 0.4% / prev 0%

Eurozone GDP y/y Q1: exp 1.2% / prev 1.2%

U.S. retail sales: exp 0.2% / prev 1.6% control group: exp 0.4% / prev 1.0%

Canada CPI m/m: exp 0.3% / prev 0.7% y/y: exp 1.7% / prev 1.9%

BOC CPI core m/m: exp 0% / prev 0.3% y/y: exp 1.8% / prev 1.6%

U.S. industrial production: exp 0.2% / prev -0.1%

Thur May 16: Australia employment change: exp 14,000 / prev 25,700

Australia unemployment rate: exp 5.1% / prev 5%

Canada manufacturing shipments: exp 0.1% / prev -0.2%

Fri May 17: Eurozone CPI m/m: exp 0.7% / prev 1.0% y/y: exp 1.7% / prev 1.7%

Technically, USDCAD is neutral / bearish. The pairing continues to struggle to break through the 1.3470 – 1.3520 resistance zone – an area that has been tested numerous times over the past 3 months. On the flipside, the pairing also struggled to gain traction below 1.3400 for the 2nd straight week finding support near at the 1.3380 level. USDCAD managed to close the week below minor resistance levels at 1.3440 and 1.3480. With the USD ending the week on a softer note, look for downward pressure to resume in the week to come. For a change in trend, we will likely need to see a clean break above the 1.3500 level or below the 1.3380 level.

Topside targets to consider: 1.3480, 1.3500, 1.3525, 1.3575

Downside targets to consider: 1.3380, 1.3330, 1.3275, 1.3250

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