FX Weekly Update – November 23rd, 2020
Posted Under: Weekly updates
USD continues to weaken against most currencies. CNY and MXN gaining the most! Both of these currencies reflect two driving factors behind their assent: first, they are both manufacturing centers for the major economies and the market may be sniffing a global recovery. Secondly, neither country have been highlighted as having rising Covid cases. China announced they had 17 new cases, that is 17 cases out of 1B people. Mexico, on the other hand, has had 1,032,688 cases and 101,373 deaths (9.8%). The U.S. has 12,275,593 and 260,233 deaths (2.1%).
The market may be more focused on the attention of Europe, the UK and the US when it comes to this virus given these three economies are the drivers behind consumption. If the lockdowns are hurting paychecks and spending habits, then the entire globe will feel the pinch. With that said, we will begin focusing more on the global yields to help determine at what rate the USD might fall. The U.S. 10 year is at 0.82%, Canada: 0.56%, Mexico: 5.89%, Germany: -0.59%, UK: 0.30% and Japan at 0.00%. Yes, Germany is negative and that creates an obstacle for the EUR.
Other than MXN, USD should have the advantage over other currencies. There is no question that this is the underlying reason behind the slow descent of the USD. Although nearly every financial firm expects USD to weaken, the case with rates favor USD, the low percentage of deaths from Covid favor USD but the new administration’s goal of huge spending on green programs, erasing student debt and move toward socialized medicine, creates the uncertain environment and reason to sell USD.
U.S. Holiday on Thursday. Expect the week to have increased volatility!
EUR (1.1875): YAWN! Last week’s range was 1.1850 to 1.1880. Not much to discuss. Hourly charts have three ‘highs’ at 1.1895, so we can call that the first line of resistance, followed by 1.1920 and 1.2000. Support comes in at 1.1850, 1.1820 and then 1.1750. In other words, unless there is something from Brexit or more information about Covid, EUR will just move sideways!
GBP (1.3320): GBP is already ticking higher through the 1.3310 resistance level. This could be a function of stop-loss orders being executed in the thin Asian market. Keep in mind that GBP has been rising steadily over the last several weeks. Any positive news from Brexit will accelerate the rise and push it toward 1.3500. That does seem to be the “path of least resistance”. If the U.K. has to go it alone then we’ll see the rate quickly fall below 1.3000!
CAD (1.3070): Oil prices rallied last week even though Covid cases continue to increase and more countries close down. CAD strengthened accordingly but USD remains above the recent low of 1.2950 (support). With the exception of Emmy award winning Governor Cuomo, most believe the vaccines that will be available by year’s end will provide confidence for a longer-term economic recovery. More demand for oil will drive USD lower through 1.2950 and ultimately to 1.2500!
JPY (103.70): The Yen strength is surprising and is quickly nearing the 103.00 print from earlier in the month. The movement into the safe-haven yen does provide a clue to the investing communities nervousness around the increased Covid cases.
MXN (20.05): The strength of the peso does not seem to be slowing any time soon. Although their cases of Covid continue to rise and a nearly 10% fatality rate, the interest rate difference is supporting currency. 19.50 is the logical target that may be reached this week. Much of this strength can also be attributed to the Biden administrations more liberal view of immigration, specifically from Mexico and Central America.
CNH (6.55): We mentioned in our opening comments that China has recorded an amazing 17 new cases of COVID last week! Like Mexico, they will benefit from the Biden’s administration more dovish relationship with China. Together, the currency continues to gain strength. Goldman Sachs has it headed to 6.30 by Q2 of 2021. 6.40 will be the first support level (trend line) but with CNY, technicals and interest rates matter less than policy.