FX Weekly

FX Weekly Update – April 19th, 2021

Posted Under: Weekly updates

The dollar lost ground last week following the yield on the 10 year (1.55%). U.S. Retail sales jumped 9.8%. Equity markets continued to rally to new historical highs. Great news on Covid cases, states like Florida and Texas saw them fall while New York, Illinois and California are rising. Net: cases and deaths attributed to the pandemic are also falling which is good news for the economy but not for the U.S. dollar. Several weeks ago the markets were concerned about inflation and how the Fed is going to manage it, what tools would be available (other than hiking rates), etc. But now, even with the huge retail sales number, higher oil and gas prices, additional government assistant packages, Fed Chairman Powell does not seem too concerned about inflation. He has reiterated that low rates, possibly through 2024, is the right thing to do. The longer-term U.S. yields fell, dragging the dollar lower. Currencies such as the Mexican peso, Canadian dollar and the Australian dollar, rallied the most. These currencies are considered “commodity” currencies where they reflect the value of oil and industrial metals. Domestic steel prices are rising to the point that importing steel from Asia is around $300/ton cheaper even after shipping costs and tariffs. Iron Ore (steel component) is higher as well, reflecting demand. The U.S. economy is roaring back, lumber prices are spiking as home builders struggle to keep up with demand. Regardless of these pricing pressures, the Fed does not seem concerned, and the dollar will most likely continue lower!

EUR (1.1970): The single currency moved near 1.2000 last week, printing 1.1993. The strength is less a single currency move and more of a weak dollar. The first two days of this week should see another attempt by the EUR to move above 1.2000. Failure to move above it will most likely lead to a sell-off which of course would cause it to weaken against the JPY and GBP. Resistance: 1.2000,1.2040,1.2130; Support: 1.1920, 1.1865

GBP (1.3825): Last week’s range was 1.3668/1.3841, which was inside the previous week’s. The consolidation may continue this week. There is more activity between the EUR and the GBP, than the GBP/UDS. Very important support is at 1.3600. If the currency remains above that, the currency will move back above 1.4000. Rephrasing that, as the pound consolidates it will be building momentum for a break above 1.4000 and then the 1.4241 high from February. Resistance: 1.3840, 1.3920; Support: 1.3795, 1.3720

CAD (1.2510): Oil made an impressive rally late in the week supported by the retail sales but more importantly by the U.S. White House discussing potential sanctions against Russia. The Canadian dollar rallied and has remained “well bid” for the last two weeks. The US dollar low in March was 1.2361, and that was also the low since March of 2018. GreenShootsFX expects that level to be seen again within the next three weeks. Resistance: 1.2635,1.2740; Support: 1.2470, 1.2420

JPY (108.75): Last week, we were suggesting that the currency pair would re-test the 109.04 low, but we were not expecting the area to give way and the US dollar to continue to fall. With the yield on the U.S. 10 year falling to 1.55% the yen has continued its rally. The correlation between the yield and the currency is strong and as long as the yield continues to fall, the yen will most likely continue to rally. Hourly trendline resistance at 109.00 should cap any dollar rally in the short-term. We are now looking for a move toward 108.50. Resistance: 109.00, 109.25; Support:108.50, 108.20

MXN (19.9000): The peso continued getting stronger last week as more data about the strong U.S. economy supported the buying. The next level of dollar support is at 19.5300, the low from January. We have been looking for the 18.8500 level, and as-long-as positive U.S. data continues we do not see a reason why the peso does not move to that area. Resistance: 20.20, 21.00; Support: 19.53, 19.00

CNY (6.5230): USD/CNY is following the overall weak US dollar trend. CNY has dealt between the 6.6000 and 6.5000 levels, since the end of January. The difficulty with short-term analysis for this pair is the PBOC’s control over the currency. In general, the overall dollar weakness will push the CNY back below 6.5000, and then lower to test the 6.4365 low from January. Resistance: 6.5500, 6.5850; Support: 6.5000, 6.4365