Weekly Foreign Exchange Wrap Up for Feb. 12 – 16, 2024

February 21, 2024

The USD and the CAD along with most major currency pairings ended the week largely unchanged. The USD enjoyed sharp gains after Tuesday’s hotter than expected CPI inflation report. The USD trade-weighted index climbed 1% to a 3 month high while stock markets plunged. The trend was short-lived with the USD retracing its gains Wednesday and Thursday after retail sales data was much weaker than expected. The USD briefly rallied Friday after a 2nd stronger than expected inflation report (producer price index) before falling back towards 1 week lows. Several Fed members were quick to discount the higher inflation readings this week and stock markets recovered from Tuesday’s selloff to trade near fresh historical highs. U.S. 10 year yields held between 4.19% and 4.34% after the inflation releases while expectations for interest rate cuts were pushed back to June. There is a 54.3% chance of a rate cut to 5.25% in June. There is a 43.0% chance of a 2nd rate cut in July to 5%. A 3rd rate cut in September is priced in at 36.1%. Year-end expectations have a 32.7% chance of a 4th cut to 4.50%.

USDCAD initially held a 1.3430 – 1.3475 range before surging to 1.3580/85 after the U.S. CPI report triggered risk aversion flows Tuesday morning. The move effectively breached the 2024 high-mark of 1.3544 and touched the highest level since December 13, 2023. However, the technical break could not be sustained with the USD gains unwinding Wednesday taking USDCAD down to 1.3530. The pairing fell to 1.3461 Thursday after a very weak U.S. retail sales report triggered “risk on” moves sending the USD broadly lower. Friday’s session saw USDCAD briefly test 1.3507 before falling back to 1.3470.

Key Events: *USDCAD climbs to a 2 month high before falling to a 1 week low *EURCAD holds near 4 month lows *GBPCAD climbs to a 2 week highs before falling towards a 5 week low *JPYCAD falls to 16 year lows *AUDCAD holds near a 4 month low *Oil climbs as much as 5% towards 3 month highs (range $75.52 - $79.20) *USD index climbs to 3 month high before falling towards 1 week low (103.90– 104.98) *U.S. 10 yr yield climbs towards 3 month highs (range 4.15% - 4.34%) *UK employment change: 72,000 prev 73,000 *UK ILO unemployment rate: 3.8% exp 4.0% prev 4.2% *U.S. CPI m/m: 0.3% exp 0.2% prev 0.2% y/y: 3.1% exp 2.9% prev 3.4% *U.S. CPI ex food & energy m/m: 0.4% exp 0.3% prev 0.3% y/y: 3.9% exp 3.7% prev 3.9% *UK CPI y/y: 4% exp 4.2% prev 4% Core: 5.1% exp 5.2% prev 5.1% *Eurozone GDP y/y Q4: 0.1% exp 0.1% prev 0.1% *Japan GDP QoQ Q4: -0.1% exp 0.3% prev -0.8% *Australia employment change: 500 exp 30,000 prev -62,700 *Australia unemployment rate: 4.1% exp 4% prev 3.9% *UK GDP QoQ Q4: -0.3% exp -0.1% prev -0.1% y/y Q4: -0.2% exp 0.1% prev 0.2% *U.S. retail sales: -0.8% exp -0.1% prev 0.4 *revised from 0.6% ex autos: -0.6% exp 0.2% prev 0.4% *U.S. retail sales control group: -0.4% prev 0.6% *revised from 0.8% *UK retail sales m/m: 3.4% exp 1.5% prev -3.3% y/y: 0.7% exp -1.4% prev -2.4% *U.S. producer price index m/m: 0.3% exp 0.1% prev -0.1% y/y: 0.9% exp 0.6% prev 1% *U.S. PPI ex food & energy m/m: 0.5% exp 0.1% prev -0.1% y/y: 2% exp 1.6% prev 1.7% *U.S. Michigan consumer sentiment index: 79.6 exp 80 prev 79 *U.S. UoM 5 year consumer inflation expectations: 2.9% prev 2.9%

On Tap for next week: Mon Feb 19: no key data Tue Feb 20: Bank of China interest rate: exp 3.45% prev 3.45% Canada CPI m/m: exp 0.4% prev -0.3% y/y: exp 3.2% prev 3.4% BoC CPI Core m/m: exp prev -0.5% y/y: exp prev 2.6% Wed Feb 21: U.S. FOMC minutes Thur Feb 22: Germany HCOB manufacturing PMI: exp 46.1 prev 45.5 Germany HCOB services PMI: exp 48 prev 47.7 Eurozone HCOB manufacturing PMI: exp 47.1 prev 46.6 Eurozone HCOB services PMI: exp 48.7 prev 48.4 UK S&P Global manufacturing PMI: exp 47.1 prev 47 UK S&P global services PMI: exp 54.4 prev 54.3 Eurozone Core CPI harmonized y/y: exp 3.3% prev 3.3% Canada retail sales: exp 0.8% prev -0.2% ex autos: exp 0.7% prev -0.5% U.S. S&P global manufacturing PMI: exp 50.2 prev 50.7 U.S. S&P global services PMI: exp 52 prev 52.5 Fri Feb 23: Germany GDP y/y Q4: exp -0.2% prev -0.2%

Technically, USDCAD is neutral. The rate initially climbed from 1.3430 up to 1.3585 effectively breaking the resistance between 1.3540/50 that has capped numerous USD rallies dating back to Dec. 13th, 2023. However, the move above was unable to extend higher and USDCAD dropped back to 1.3460. A sustained move below 1.3430 should target 1.3360 followed by 1.3300. A sustained break above 1.3500 should shift the bias to bullish and target 1.3550 followed by 1.3580 and then 1.3620.

Topside targets to consider: 1.3490, 1.3510, 1.3530, 1.3550, 1.3580, 1.3620 Downside targets to consider: 1.3460, 1.3430, 1.3410, 1.3360, 1.3340, 1.3290