The dollar index (101.10) continued to rally last week and has now recovered to March 2020 levels. The main driver has been the rising U.S. interest rates and the end of the week safe haven buying. The Fed’s Powell did confirm what Fed Fund futures have been saying, the next rate hike will likely be 0.5%, and the contract closed the week at 99.7% probability. There is also the expectation of another 0.5% rate increase in June! The Fed is now walking a tightrope. If they raise too quickly, then the recession predicted in 15 months may move closer to reality, not raising rates at the correct speed will support higher inflation. The 10-year yield did touch 3% briefly last week but closed at 2.90%. The flattening of the the yield curve ended (for the moment) and the curve steepened. Equities fell hard on Friday and the early open in Asia Sunday evening has most equities lower.

This coming week will be highlighted by U.S. durable goods, housing information, personal consumption and GDP. One note on the GDP number, the market is expecting 1% growth in Q1. That is down from last month’s 6.9%. The omicron virus’ impact at the end of ‘21 and the first quarter of ‘22 is the reason.

EUR (1.0809): The single currency has been, is and will continue to be under pressure. This week begins with French President Macron winning a hard-fought election. This has offered support for the currency, but we believe that another test of last week’s low of 1.0756 will happen early in the week. Below that, target 1.0500. Near-term resistance is at 1.0830, then 1.0930.

GBP (1.2820): Last week’s plunge in the pound took it from 1.3090 to a low of 1.2810. Behind the fall were some comments by the BOE about the speed of their rate increases. Potentially signaling a slower cycle increasing their rates. The other factor (which was most likely triggered by those words), was the quick reversal in EUR/GBP. The euro rallied and squeezed long sterling positions. This week has a busy calendar of economic data, but the driver now will be stop-loss orders below 1.2810, and again at 1.2750. If those orders are touched, they will cause more selling,

JPY (128.50): The current level of USD/JPY was last dealt in February of 2002! Dollar strength can be most directly related to the high U.S. 10-year yield versus the JGB. In fact, even though the Japanese rates are 0.25% for the 10-year, the BOJ did say they have no issue with continuing to purchase their own bonds. Which will continue to keep their rates low. We would expect that the dollar will continue to move higher, but it will be choppy. Sellers of yen need to be patient. 125.00 is a logical area to sell. Yen buyers should consider buying against 130.00, even if it is a portion of your total need.

CAD (1.2735):  Oil prices ($100.00) did move lower throughout the week but not nearly as much as the weakness in the Canadian dollar would suggest! No question that the Fed’s indication of a 0.5% rate increase followed by additional similar hikes was a key to fall in the Canadian dollar. 1.2900/ 1.3000 has been very good resistance for the dollar. Buyers of Canadian funds should use that level to initiate either new hedges or add to hedges already in place. Sellers of Canadian dollars are going to find the week difficult but any fall toward 1.2500 should be a good area to buy USD and sell Canadian.

MXN (20.3500): After spending the last three weeks testing the major support level of 19.50-19.7000, the dollar has rallied and is now set to continue toward 20.7500. The peso has been relatively forgotten since the Russia/Ukraine war. The value of buying peso’s and earning the higher interest rates has not been as attractive to investors as safety in dollar assets. Be prepared to take advantage of further peso weakness, these levels are always a great to hedge peso expenses.

CNY (6.5650): The currency that had the least amount of volatility over the last 6 months, jumped this week as the USD rallied through important resistance levels. Now that those (6.40, 6.50 and 6.55) have given way, the target for this USD/CNY rally is 6.6635, which is a 38.2% retracement of the 7.15 – 6.30 move. The rapid increase in the covid virus in China, along with their strict shutdowns, have slowed their economy. One way to relieve some of that pressure is to allow the CNY to weaken, which the PBOC has done.