VBCE Weekly Foreign Exchange Wrap Up for June 10 – 14, 2019 and Currency Forecast

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

The USD was the best preforming currency this week after having closed last week near 3 month lows. USDCAD initially gapped lower at the open (from 1.3265 down to 1.3242) in reaction to Trump's announcement that he would not place tariffs on Mexico. The pairing held a fairly narrow 1.3250 – 1.3309 range through mid-day Wednesday before climbing to 1.3345. Trade tensions re-surfaced on Wednesday with equity markets moving lower. Oil prices also plunged as much as 7% towards a 5 month low from Monday's levels. On Thursday, oil prices rebounded by 5% briefly sending USDCAD back down to 1.3300. The USD moved up sharply on Friday after the release of U.S. retail sales and industrial production data. The USD index climbed to a 1 week high as did USDCAD – eventually closing the week near the highs just above 1.3400. Recent U.S. data has largely disappointed fueling calls for the Fed to lower its key interest rate. Friday's data showed improvement with notable positive revisions to prior data. Oddly enough, the U.S. 10 year yield failed to recover and remained anchored near 3 year lows @ 2.08%. The market now awaits the key U.S. Fed interest rate announcement out at 11:00am, Wednesday June 19th. There is a slight possibility they will cut interest rates. If rates are held unchanged, look for rhetoric to suggest potential cuts in the near future.

Weekly Open

Low

High

Weekly Close

USDCAD

1.3242

1.3242

1.3422

1.3406

EURCAD

1.5010

1.4983

1.5084

1.5030

GBPCAD

1.6877

1.6793

1.6964

1.6885

JPYCAD

0.01221

0.01218

0.01236

0.01235

AUDCAD

0.9283

0.9185

0.9286

0.9209

Key Events for the week:

*USDCAD climbs from 3 month lows to 1 week high

*EURCAD holds near 18 month low /EURUSD falls from 3 mo high towards 2 year low

*GBPCAD holds near 6 month low / GBPUSD falls towards 2 year lows

*JPYCAD climbs towards 5 month highs / USDJPY falls towards a 1 year low

*AUDCAD falls towards 9 year lows / AUDUSD falls from 1 month high towards 10 year lows

*Crude oil falls as much as 7% to a 5 month low before rebounding: $50.95 - $54.94

*USD index rebounds from 3 month lows to a 1 week high: 96.58 – 97.59

*U.S. 10 year Treasury yields decline towards 31 month lows: range 2.05% - 2.18%

*China trade balance: $41.65 billion (exp $20.50 billion / prev $13.83 b)

*China exports y/y: 1.1% (exp -3.8% / -2.7%)

*UK manufacturing production m/m: -3.9% (exp 0.2% / prev 0.9%)

*UK GDP (April): -0.4% (prev -0.1%)

*UK earnings ex bonus: 3.4% (exp 3.1% / prev 3.3%)

*U.S. producer price index y/y: 1.8% (exp 2.0% / prev 2.2%)

*China CPI y/y: 2.7% (exp 2.7% / prev 2.5%)

*U.S. CPI m/m: 0.1% (exp 0.1% / prev 0.3%) y/y: 1.8% (exp 1.9% / prev 2.0%)

*U.S.CPI ex food&energy m/m:0.1% (exp0.2%/prev0.1%)y/y:2.0% (exp2.1%/prev2.1%)

*Australia employment change: 42,300 (exp 17,500 / prev 43,100 *revised from 28,400)

*Australian unemployment rate: 5.2% (exp 5.1% / prev 5.2%)

*Germany CPI harmonized y/y: 1.3% (exp 1.3% / prev 1.3%)

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

*China retail sales: 8.6% (exp 8.1% / prev 7.2%)

*U.S. retail sales: 0.5% (exp 0.6% / prev 0.3% *revised from -0.2%)

*U.S. retail sales ex autos: 0.5% (exp 0.3% / prev 0.5% *revised from 0.1%)

*U.S. industrial production: 0.4% (exp 0.2% / prev -0.4%)

On Tap for Next week:

Tue June 18: Germany ZEW Survey – economic sentiment: -21.1 (exp -5.9 / prev -2.1)

Eurozone CPI m/m: 0.1% (exp 0.2% /prev 0.7%)y/y: 1.2% (exp 1.2% /prev 1.7%)

Eurozone CPI core m/m: -0.1% (exp 0 / prev 0) y/y: 0.8% (exp 0.8% / prev 1.3%)

Japan Exports y/y: -7.8% (exp -7.7% / prev -2.4%)

Wed June 19: UK CPI m/m: 0.3% (exp 0.3%/prev 0.6%) y/y: 2.0% (exp 2.0% prev 2.1%)

UK CPI core y/y: 1.7% (exp 1.7% / prev 1.8%)

Canada CPI m/m: 0.4% (exp 0.2% / prev 0.4%) y/y: 2.4% (exp 2.1% / prev 2.0%)

BOC CPI core m/m: exp -0.1% / prev 0% y/y: exp 1.2% / prev 1.5%

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

U.S. FOMC statement and economic projections

Thur June 20: Bank of Japan interest rate decision: exp -0.1% / prev -0.1%

UK retail sales m/m: exp -0.5% / prev 0% y/y: exp 2.7% / prev 5.2%

Bank of England interest rate: exp 0.75% / prev 0.75%

Japan national CPI ex food & energy y/y: exp 0.6% / prev 0.6%

Fri June 21: Germany Markit manufacturing PMI: exp 44.5 / prev 44.3

Eurozone Markit manufacturing PMI: exp 48.0 / prev 47.7

Canada retail sales: exp 0.2% / prev 1.1% ex autos: exp 0.3% / prev 1.7%

U.S. Markit manufacturing PMI: exp 50.4 / prev 50.5

Technically, USDCAD is neutral. Although, the pairing broke below several key support levels and finished the previous week near 3 month lows, the trend was mostly higher this week. After an initial gap down from 1.3265 down to 1.3242 at the open, USDCAD spent much of the week between 1.3250 and 1.3310 before rising to 1.3345 during Wednesday's NA session. Friday saw a move from 1.3330 up to 1.3422 – a one week high and just shy of the 1.3430 tech level. A daily close above 1.3430 will likely target a re-test of the May highs (1.3520 - 1.3565) while a failure will likely lead to a retest of the March and June lows @ 1.3250.

Topside targets to consider: 1.3430, 1.3480, 1.3520, 1.3565

Downside targets to consider: 1.3330, 1.3250, 1.3130, 1.3080

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