FX Weekly

FX Weekly Update – January 25th, 2021

Posted Under: Weekly updates

The week was a quiet one where USD recovered slightly in an otherwise uneventful period. U.S. interest rates held steady with the 10-year at 1.086%, which will remain on the radar of both currency and equity markets going forward. Markets will be more sensitive to rates as the production and 950,000 “in the arm” vaccines each week have given them something different to focus on. Getting back to business; this week we will have Microsoft, Tesla and Apple report earnings along with GDP and the volatile durable goods. There is a good article in Sunday’s WSJ about the UN announcement on China now receiving more foreign investment than the U.S.

EUR (1.2160): Not much to discuss about the euro activity last week. The currency remains stuck between the weakening USD and the strengthening of sterling and other currencies. Looking at the hourly chart there is a strong chance that euro will begin the week making a new high above 1.2200. Will it remain above? That story will unfold throughout the week. For companies that sell product into Europe the strength of the currency should prompt some hedging activity.

GBP (1.3690): This could be the week for sterling to get above the 1.3700 level and remain there. Failing to hold rallies over the last several weeks has worn out the buyers but that also means they have taken a less bullish stance and typically that is the catalyst for a move higher. With that said, questions remain about the ability of the U.K. to deal with Covid and the vaccine.

CAD (1.2720): The support area of 1.2600-1.2650 has held for several weeks even as oil, the main driver behind the currency, rallied above $52/bbl. This week, oil prices have run into the first line of resistance and will most likely fall back toward $49/bbl. This should support USD and push CAD toward 1.2850, giving companies that have Canadian expenses an opportunity to buy the currency more cheaply.

JPY (103.80): Trendline resistance is capping the assent of USD and we would expect it to fall back toward 103.00. Does that change the current scenario? No, USD/JPY should continue to rise as equity markets make new “historical” highs. Companies that need to buy yen may be disappointed this week but will have a chance to buy cheaper JPY over the next several weeks.

MXN (20.00): We see this currency as a leader in determining USD activity. It has failed to continue to gain strength through 19.50 and has fallen to 20.00 to begin the week. There is a lot of USD resistance between 20.00 and 20.20 and that may keep a lid on this dollar rally but it may also keep activity muted for the week. Peso buyers should look to purchase spot and forward contracts to take advantage of the currency’s weakness and forward point pick-up.

CNH (6.48): The recent range of 6.50 / 6.45 has held the currency since it rallied through the 6.50 area. The data that indicates more new investment is flowing into China than into the U.S. should keep pressure on USD and ultimately make product in China more expensive for buyers. This current level should be an opportunity for companies that need to make payments and, like peso buyers, spot and forward purchases should be initiated!