VBCE Weekly Foreign Exchange Wrap Up for May 27 – May 31, 2019 and Currency Forecast

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

The CAD and GBP were the worst performing currencies this week while the JPY outperformed. USDCAD climbed from 1.3430 up to 1.3547 before falling back to 1.3485. In early Asian trade Friday, Trump announced upcoming tariffs on all U.S. imports from Mexico – just hours after U.S. officials were promoting the new Canada /U.S./Mexico trade agreement. This caught the market off-guard sending USDCAD up to 1.3543. The move extended to 1.3565 in the London session – the highest since Jan. 3 and within 1 cent of a 2 year high. Canadian GDP data out Friday morning indicated a strong recovery underway in March from the low growth levels seen in Q4 2018 and Q1 2019. USDCAD managed to finish the week at 1.3508 – only ¾ of a cent higher which is surprising given that oil prices plunged 11% over Thursday and Friday. Since peaking near 6 month highs at $66.50 on April 23, oil prices have since fallen 21% towards 4 month lows. Also, North American equity markets – specifically the TSX and DJIA, sold off to the lowest levels in nearly 3 and 4 months respectively. The risk-off attitude in the markets boosted the JPY towards a 5 month high while the GBP dropped towards a 5 month low.

Key Events for the week:

*USDCAD climbs to 5 month highs

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

*GBPCAD holds near 5 month low / GBPUSD holds near 2 year lows

*JPYCAD climbs to 5 month highs / USDJPY falls towards a 5 month low

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

*Crude oil gains plunges 11% from to a 4 month low: $59.78 - $53.13

*USD index re-tests 2 year highs before falling towards weekly low: 97.55 – 98.29

*U.S. 10 year Treasury yields decline towards 19 month lows: range 2.32% - 2.12%

*Germany employment change: 60,000 (exp -8,000 / prev -12,000)

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

*Bank of Canada interest rate decision: 1.75% (exp 1.75% / prev 1.75%) https://www.bankofcanada.ca/2019/05/fad-press-release-2019-05-29/

*U.S. GDP Q1 annualized: 3.1% (exp 3.1% / prev 3.2%)

*U.S. GDP price index: 0.5% (exp 0.6% / prev 0.6%)

*Japan unemployment rate: 2.4% (exp 2.4% / prev 2.5%)

*Japan Tokyo CPI ex fresh food y/y: 1.1% (exp 1.2% / prev 1.3%)

*Japan retail trade y/y: 0.5% (exp 0.8% / prev 1%)

*China NBS manufacturing PMI: 49.4 (exp 49.9 / prev 50.1)

*China non-manufacturing PMI: 54.3 (exp 54.5 / prev 54.3)

*Germany retail sales m/m: -2.0% (exp 0.1% / prev -0.2%

*Canada GDP (March): 0.5% (exo 0.3% / prev -0.2%)

*Canada GDP Q1 annualized: 0.4% (exp 0.7% / prev 0.3%)

On Tap for Next week:

Mon June 3: China Caixin manufacturing PMI: exp 50.0 / prev 50.2

Germany Markit manufacturing PMI: exp 44.3 / prev 44.3

Eurozone Markit manufacturing PMI: exp 47.7 / prev 47.7

U.K. Markit manufacturing PMI: exp 53.4 / prev 53.1

Canada Markit manufacturing PMI: exp 49.8 / prev 49.7

U.S. Markit manufacturing PMI: exp 50.6 / prev 50.6

U.S. ISM manufacturing PMI: exp 53.3 / prev 52.8

Tue June 4: Australia central bank interest rate: exp 1.25% / prev 1.50%

Eurozone unemployment rate: exp 7.7% / prev 7.7%

Eurozone CPI y/y: exp 1.4% / prev 1.7% Core: exp 1.0% / prev 1.3%

Wed June 5: Australia GDP Q1 (qoq): exp 0.3% / prev 0.2%

China Caixin services PMI: exp 54.4 / prev 54.5

U.S. ADP employment change: exp 190,000 / prev 275,000

U.S. ISM non-manufacturing PMI: exp 56.0 / prev 55.5

Thur June 6: Eurozone GDP Q1y/y: exp 1.2% / prev 1.2%

European central bank interest rate: exp 0% / prev 0%

Canada international merchandise trade: -$2.45 billion / prev -$3.21 billion

U.S. trade balance: exp -$50.2 billion / prev -$50.0 billion

Canada Ivey purchasing managers index: exp 53.0 / prev 55.9

Fri June 7: Canada net employment change: exp / prev 106,500

Canada unemployment rate: exp 5.8% / prev 5.7%

Canada average hourly wages y/y: prev 2.6%

U.S. non-farm payrolls: exp 190,000 / prev 263,000

U.S. unemployment rate: exp 3.7% / prev 3.6%

U.S. average hourly earnings y/y: exp 3.2% / prev 3.2%

Technically, USDCAD is bullish / neutral. The pairing broke above the recent resistance zone (1.3500 - 1.3522) that had contained the pairing for nearly 2 years with the exception of a brief rally to 1.3660 in late Dec. 2018. The highs extended to 1.3543 on Wednesday and to 1.3565 on Friday. However, the uptrend appears to have stalled as the pairing closed the week back below the broken levels (1.3522, 1.3547, and 1.3565). For a change in trend, we will need to see a sustained break either above the 1.3522 level or below the 1.3380 level.

Topside targets to consider: 1.3522, 1.3547, 1.3575, 1.3660

Downside targets to consider: 1.3480, 1.3430, 1.3380, 1.3357

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