VBCE Weekly Foreign Exchange Wrap Up for June 17 – 21, 2019 and Currency Forecast USDCAD falls towards 4 month lows

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

The CAD was the best preforming currency this week with the EURO a close second. The USD was the worst performing currency with losses intensifying after Wednesday's dovish U.S. Fed statement and down-graded inflation forecast. USDCAD opened the week near 1.3433 and dropped to 1.3365 on Tuesday as talks of further easing by the European Central bank and an expected dovish U.S. Fed spurred global equity markets with the DJIA soaring nearly 500pts to new historical highs. USDCAD dropped from 1.3384 down to 1.3337 Wednesday morning after stronger than expected Canadian inflation data essentially erased any chance of an interest rate cut by the Bank of Canada. The U.S. Fed kept rates unchanged but opened the door for two interest rate cuts by the end of 2020 according to the Fed dot plot. Inflation expectations were revised lower – from 1.8% down to just 1.5% for 2019. The market is now pricing in a 71% probability of a 0.25% rate cut and a 29% chance of a 0.50% rate cut at the July 30 U.S. Fed (FOMC) meeting. Just 1 month ago, the probability that rates would be kept unchanged was 82%. USDCAD dropped to 1.3260 – just above last week's 1.3242 low. Broad USD weakness continued Thursday as equity markets pushed higher and oil prices jumped 3% as U.S. / Iran tensions escalated. USDCAD dropped to 1.3150 – the lowest level since Mar.1 and within 1 cent of an 8 month low. On Friday, Canadian retail sales were largely as expected while gold broke the $1,400 level to trade near 6 year highs. Oil prices tested the $58 level – having gained 14% over the past 8 days. The USD index fell to a 3 month low while U.S. 10 year yields rebounded back above 2.00% after having fallen to 1.97% / 3 year lows on Thursday. USDCAD climbed from 1.3162 up to 1.3230 and closed the week near 1.3220.

Weekly Open

Low

High

Weekly Close

USDCAD

1.3410

1.3151

1.3433

1.3221

EURCAD

1.5035

1.4862

1.5085

1.5027

GBPCAD

1.6890

1.6673

1.6905

1.6842

JPYCAD

0.01236

0.01221

0.01241

0.01231

AUDCAD

0.9215

0.9104

0.9230

0.9150

Key Events for the week:

*USDCAD falls to 4 month lows / within 1 cent of an 8 month low

*EURCAD falls to within 1 cent of a 20 month low /EURUSD climbs to 3 month highs

*GBPCAD falls to 20 month low / GBPUSD climbs towards 1 month high

*JPYCAD falls from 6 m highs towards 1 month low / USDJPY falls towards a 14 m low

*AUDCAD falls towards 9 year lows / AUDUSD climbs to 2wk high from 10 year lows

*Crude oil (WTI) climbs 12% to 1 month high from 5 month low: range $51.75 - $58.00

*USD index falls to 3 month lows / closes below key tech level: range 96.15 – 97.77

*U.S. 10 year Treasury yields decline towards 3 year lows: range 1.97% - 2.11%

*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%)

*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: 0.4% (exp -0.1% / prev 0%) y/y: 2.1% (exp 1.2% / prev 1.5%)

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

*U.S. FOMC statement and economic projections: https://www.federalreserve.gov/newsevents/pressreleases/monetary20190619a.htm

https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20190619.pdf

*Bank of Japan interest rate decision: -0.1% (exp -0.1% / prev -0.1%)

*UK retail sales m/m: -0.5% (exp -0.5% / prev -0.1%) y/y: 2.3% (exp 2.7% / prev 5.1%)

*Bank of England interest rate: 0.75% (exp 0.75% / prev 0.75%)

*Japan national CPI ex food & energy y/y: 0.5% (exp 0.6% / prev 0.6%)

*Germany Markit manufacturing PMI: 45.4 (exp 44.5 / prev 44.3)

*Eurozone Markit manufacturing PMI: 47.8 (exp 48.0 / prev 47.7)

*Canada retail sales: 0.1% (exp 0.2% / prev 1.3% *from 1.1%)

*Canada retail sales ex autos: 0.1% (exp 0.3% / prev 1.8% *from 1.7%)

*U.S. Markit manufacturing PMI: 50.1 (exp 50.4 / prev 50.5)

On Tap for Next week:

Tue June 25: Canada wholesale sales: 1.7% (exp 0.2% / prev 1.4%)

U.S. Fed Powell speech

Wed June 26: U.S. durable goods orders: exp 0.2% / prev -2.1%

Japan retail trade y/y: exp 1.2% / prev 0.4%

Thur June 27: U.S. GDP Q1 annualized: exp 3.1% / prev 3.1%

U.S. GDP price index: exp 0.8% / prev 0.5%

Japan unemployment rate: exp 2.4% / prev 2.4%

Japan Tokyo CPI ex fresh food y/y: exp 0.9% / prev 1.1%

Japan industrial production y/y: exp -2.6% / prev -1.1%

Fri June 28: G20 Meeting

UK GDP Q1 (qoq): exp 0.2% / prev 0.5%

Eurozone CPI core y/y: exp 1.0% / prev 0.8%

Canada GDP (April): exp 0.1% / prev 0.5%

Bank of Canada Business Outlook Survey

Technically, USDCAD is bearish. The pairing trended lower for much of the week and broke below the previous week's low of 1.3242 / 1.3250 support level. The late Feb. low of 1.3114 is now in play along with the 2019 low of 1.3069.

Topside targets to consider: 1.3250, 1.3330, 1.3430, 1.3480

Downside targets to consider: 1.3150, 1.3070, 1.3000, 1.2900

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

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