FX Weekly

FX Weekly Update – April 11th, 2022

Posted Under: Weekly updates

The dollar “wandered” around in the early part of last week. Most currencies remained within their recent ranges. The FOMC minutes were released on Wednesday afternoon, and that changed the quiet FX markets. Although there was an expectation that the Fed’s unwinding of their balance sheet, the monthly amount was a surprise. The Fed will begin selling or letting mature, $95B., with $60B being treasury’s and $35B MBS. Market expectations were for something closer to $80B. The USD jumped on the news, with the euro falling most.

This week the economic calendar is packed in both the U.S. as well as in Canada, the U.K. and Europe. The highlight for the U.S. will be the inflation reports on Tuesday and Wednesday when CPI (Tuesday) is expected to show an 8.3% YoY increase and Wednesday’s PPI is forecast for a 10% increase YoY. Unless these numbers show a decrease, the dollar should remain strong, and U.S. rates firm.

EUR (1.0885): The fall of the single-currency below 1.0900 does give comfort to “shorts”, with hopes of pushing stop-loss orders below the previous low of 1.0805. We are reading more financial firms forecasting 1.0700 and 1.0500. The market will be focused on Thursday’s ECB rate announcement. This will be critical for any future euro movement. Between high inflation, and the war on their border, the ECB is in a very difficult position. They have had a more dovish view of rates, but the last six months of inflation forced them to stir. Let’s not forget the French election! Hardly a small event, but currently Marcon is leading le Pen 54%-46%! If something changes and Macron does not win, the euro should be under further pressure.

GBP (1.3025): One currency that seems to be insulated from movement has been the pound. Limited ranges and no strength even after three BoE rate hikes. Trading theory would suggest that if a currency can’t rally on good news (rate hikes) then that is a bearish signal. 1.3100 is the first resistance level, followed by 1.3175. Support for the currency is at 1.2800, then 1.2650. The economic data released this week will also tell the story of inflation. The OPI and PPI are released on Wednesday are expected to show a 6.7% YoY CPI and PPI input prices at 13.4%!! These numbers would push the BoE to larger (0.5%) and more frequent rate hikes.

CAD (1.2600):  Oil prices have fallen on the back of the increased global supply. Where is the supply coming from? Strategic Oil Reserves in 47 different countries, the International Energy Agency. Together, they will release 180 million barrels of oil over the next 6 months. Oil is currently dealing at $96, as the week begins. This weakness, along with overall dollar strength is keeping the Canadian dollar under pressure. Keeping oil prices front and center will provide some insight in future Canadian dollar moves. Major support is at the 1.2400 and then 1.12325, while resistance for $/Cad is 1.2650, then 1.2800.  The BoC will have a rate announcement on Wednesday. Expect 0.50%.

JPY (124.50):  Two weeks ago, USD/JPY traded to 125.10, before being sold-off to 121.00. We begin this week with 125.10 in sight. The 10-year U.S. yield is dealing at 2.70%, which makes the spread between the JGB and U.S. treasury continue to widen. As long as this trend is in place, USD/JPY is headed to 130.00. No threat of central bank intervention until the dollar nears the 140.00 area. Our guess is 137.00 will be near the top of this dollar rally.

MXN (20.0500): The peso maintains an interest rate advantage against the dollar. Therefore, it is always important to use the forward markets to buy a cheaper currency to hedge future expenses. The support at 19.7000 is a major level and must be respected. If it gives way, with a close below, then the USD should move quickly toward 19.0000 and 18.75000. Resistance is at 20.50 and 21.20.

CNY (6.3715): Nothing new with this currency. As the new strain of covid moves through China, the government has shutdown many cities (including Shanghai) and factories to stop the spread. This is putting pressure on commodity prices, as their demand wanes. The need to keep the currency steady is very important to the PBOC. Range of 6.3500 to 6.4000.