VBCE Weekly Foreign Exchange Wrap Up for May 20 – May 24, 2019 and Currency Forecast

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

The JPY and the EUR were the top performing currencies this week while the GBP and USD lagged behind. With global equity markets falling towards 3 month lows, the flight to safety boosted the JPY and EUR. The GBP had fallen almost daily for the past three weeks nearing 5 month lows vs the CAD and 2 year lows vs the USD before rising late in the week - surprisingly even after UK PM May announced her resignation. USDCAD dropped from 1.3460 down to 1.3395 early in the week and extended down to 1.3357 early Wednesday as Canada posted a strong retail sales report. The 1.3380/1.3400 support zone in place the past 5 weeks was effectively broken but the pairing snapped back to 1.3440. The USD saw some brief strength on Thursday with the USD index (DXY) re-testing 2 year highs. Global equity markets sold off sharply with the DJIA down more than 400 pts at one point. Oil prices (WTI) plunged from $61.45 down to $57.34 – a one day drop of nearly 7%. WTI had tested $64 on Monday – near a 7 month high before falling to 2 month lows on Thursday. USDCAD climbed to 1.3502 briefly before falling back to 1.3465 on broad USD declines as the U.S. 10 year treasury yield fell to 2.29% - near an 18 month low. The 10 year yield had been as high as 3.25% back in November. USD weakness continued through Friday's session as U.S. durable goods order data missed estimates and saw significant negative revisions to prior data. Equity and commodity markets also recovered taking USDCAD from 1.3483 down to 1.3430.

Weekly Open

Low

High

Weekly Close

USDCAD

1.3450

1.3357

1.3502

1.3436

EURCAD

1.5010

1.4924

1.5095

1.5044

GBPCAD

1.7120

1.6905

1.7160

1.7082

JPYCAD

0.01221

0.01210

0.01232

0.01228

AUDCAD

0.9280

0.9200

0.9317

0.9295

Key Events for the week:

*USDCAD holds steady between 5 month highs and 1 month lows

*EURCAD rebounds from 18 month lows / EURUSD rebounds from 2 year lows

*GBPCAD declines towards a 5 month low / GBPUSD rebounds from 2 year lows

*JPYCAD holds near 5 month highs / USDJPY falls towards a 4 month low

*AUDCAD rebounds from 9 year lows / AUDUSD rebounds from 10 year lows

*Crude oil gains plunges 10% from 7 month highs to a 2 month low: $57.36 - $63.97

*USD index (DXY) falls from near 2 year highs towards a 1 week low: 97.55 – 98.38

*U.S. 10 year Treasury yields decline towards 18 month lows: range 2.29% - 2.44%

*Japan Industrial production y/y: -4.3% (exp -4.6% / prev -4.6%)

*Japan GDP qoq Q1: 0.5% (exp 0%/prev 0.4%) annualized: 2.1%(exp -0.2%/prev1.6%)

*Japan exports y/y: -2.4% (exp -1.8% / prev -2.4%)

*Japan machinery orders y/y: -0.7% (exp -3.4% / prev -5.5%)

*UK CPI m/m: 0.6% (exp 0.7% / prev 0.2%) y/y: 2.1% (exp 2.2% / prev 1.9%)

*Canada retail sales m/m: 1.1% (exp 1.0% / prev 1.0% *revised from 0.8%)

*ex autos: 1.7% (exp 0.9% / prev 0.7% *revised from 0.6%)

*U.S. FOMC minutes: current interest rate "would likely remain appropriate for some time". Recent low inflation readings are deemed to be "transitory".

*Germany Markit manufacturing PMI: 44.3 (exp 44.8 / prev 44.4)

*Eurozone Markit manufacturing PMI: 47.7 (exp 48.1 / prev 47.9)

*U.S. Markit manufacturing PMI: 50.6 (exp 52.5 / prev 52.6)

*Japan National CPI ex food & energy y/y: 0.6% (exp 0.4% / prev 0.4%)

*UK retail sales m/m: 0 (exp -0.3% / prev 1.2%) y/y: 5.2% (exp 4.6% / prev 6.7%)

U.S. durable goods orders: -2.1% (exp -2.0% / prev 1.7% *revised from 2.7%)

Ex transportation: 0% (exp 0.2% / prev -0.5% *revised from 0.4%)

On Tap for Next week:

Mon May 27: U.S. Memorial Day

Wed May 29: Germany employment change: exp -7,000 / prev -12,000

Germany unemployment rate: exp 4.9% / prev 4.9%

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

Thur May 30: U.S. GDP Q1 annualized: exp 3.1% / prev 3.2%

U.S. GDP price index: exp 1.7% / prev 0.6%

Japan unemployment rate: exp 2.4% / prev 2.5%

Japan Tokyo CPI ex fresh food y/y: exp 1.2% / prev 1.3%

Japan retail trade y/y: exp 0.8% / prev 1%

Fri May 31: China NBS manufacturing PMI: exp 49.9 / prev 50.1

China non-manufacturing PMI: exp 54.5 / prev 54.3

Germany retail sales m/m: exp -0.1% / prev -0.2%

Canada GDP (March): prev -0.1%

Canada GDP Q1 annualized: exp 1.2% / prev 0.4%

Technically, USDCAD is neutral. 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 5th straight week. The pairing managed to pierce the 1.3375-80 double-bottom and extend to 1.3357 only to swing back and re-test the upper bound resistance area near 1.3500 the very next day. For a change in trend, we will need to see a sustained break either 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: 1.3400, 1.3380, 1.3357, 1.3330

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

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