FX Weekly Update – April 24th, 2023
Posted Under: Weekly updates
Last week was another sleeper. The market has concluded that the Fed will hike on May 3 by 0.25% and the ECB the same. The BoE may not move at all. Both the euro and the pound remain unchanged from the previous week. There is a modest economic calendar to add to the need for more movement. The US has Durables Goods and GDP this week where neither impacts the dollar unless they are outside expectations. There is PCE on Tuesday, which is a closely watched number. James Powell has said that the PCE is an essential variable in their toolbox.
The USD Index has an interesting technical formation on the daily chart. First, the current dollar level is the 50% retracement of the ’21 low and the high in 2022. This is a significant support level for the greenback. Another important chart area is slightly above the current level (101.70). The small gap between 103.65 and 103.35 will typically get filled in. This would suggest that the dollar can rally at least to 103.65.
EUR (1.0995): The ECB will likely increase its interest rate by 0.25% on May 4. Until then, the currency will move around between 1.1050 and 1.0890. The likelihood of the lower end of the range being tested early in the week is 70%. Euro purchasers should be placing their “call” levels at 1.0920. A call level is an area that the client feels is an important area to buy Euros. The GSFX team will call to provide an update on the currency and book a transaction if necessary.
GBP (1.2450): The 1.2550 and 1.2335 have kept the Pound Sterling in a tight range. Movement outside that area (think 1.2335) will be because the GBP follows the EUR. A nearly empty calendar in the week ahead will not motivate the currency to move outside that range. Below 1.12335, support should come in near 1.2275.
JPY 134.10): The yen has been the most volatile currency, which is very interesting. The question to ask: has the carry trade become a more significant part of the global flow of funds. The carry trade is a way to utilize the interest rate disparities of certain currencies i.e., borrowing yen at a near zero interest rate and then buying another, higher-yielding asset. Resistance is 135.00 and 137.00, and support is 132.00 and 129.60.
CAD (1.3550): Oil prices fell to $77 from last week’s $82. The Canadian dollar followed as if it had been scripted. This weakness will soon run into resistance at 1.3630. With no critical data coming from Canada this week, expect the Canadian dollar to follow the oil path.
MXN (18.0000): There has been no movement or change in the peso—one of the more volatile currencies over the last several years and two weeks with no real action. Interest rate differentials are too large and favor the peso. GSFX maintains that the peso will gain strength throughout the remainder of this year and next. Demand for the peso will increase as more economic activity in the US picks up (which can be in Q4). 17.3000 is a significant support level. 19.3500 is resistance.