FX Weekly

FX Weekly Update – April 5th, 2021

Posted Under: Weekly updates

Last week ended with a huge employment number. The month of March saw 916,000 non-farm jobs created which is the largest increase since August of last year. Unemployment fell to 6.0% vs. the previous month’s 6.2%. U.S. yields ticked up as well, the 10 year closed the week at 1.72% compared to 0.91% in March of 2020. Higher yields, strong economic reports and more Covid-19 vaccines in the arms, have helped the U.S. dollar to rally back toward November 2020 levels. GreenShootsFX has been looking for a lower dollar. This reversal in trend does not concern us as much as it provides our clients the opportunity to buy foreign currency at cheaper levels. We expect the dollar to continue gaining strength in the short-term (2-3 months) with higher yields and cash moving out of emerging market economies.

EUR (1.1750): Last week, the euro gained against the dollar through the employment report (1.1787), then it fell on the positive news. This will have less economic data to trade off and therefore we expect the euro to trade more “technically” this week. The currency should move through the 1.1787 level early in the week and run into the next level of resistance at 1.1850. This move should fail, and the euro will reverse lower back to last week’s low of 1.1704.

GBP (1.3820): The pound found more to rally last week, even as the U.S. employment numbers crushed forecasts. The low for the GBP was 1.3674 before gaining back to the current level. Resistance is now at the 1.3920 and 1.3980 with the latter being a very important area if the currency is going to get back to the 1.4245 (previous high). Failure to rally above 1.3980 will potentially push the GBP below 1.3674.

CAD (1.2570): Oil prices rallied over $64.00/bbl, but slid back to $61.00/bbl by the week’s end. The Canadian dollar followed oil’s lead despite the currency holding its own against the USD until late in the week. As oil prices fell the Canadian dollar fell, but not as much as other currencies. Look for another volatile week in the oil and Canadian markets. Potential embargoes against Russia as a result of their military build-up on the Ukraine border. Political unrest in Jordan may also add more news for the market. Buying CAD at the current level, and potentially 1.2625, will be a great saving in US dollar terms. Oil may rally into the end of summer (road trip demand) and should prop the CAD higher toward 1.2200.

JPY (110.70): Last week we were keying on the resistance level of 110.00. Well, that has come and gone. U.S. equity markets continue to make new historical highs. Selling yen or borrowing yen continues to fuel equities globally (along with commodity purchasing). The yen will continue to weaken as long as the global recovery remains and the weakest the currency has been in over a year was 111.71 (March 2020) and 112.22 (February 2020). Both of these should be resistance but with the need for cheap funding, and rallying global assets, these levels may just be areas to slow down, take a breath and keep selling yen!

MXN (20.32): We have mentioned in previous updates that what is good for the U.S. economy is also good for the Peso! Friday’s employment numbers saw peso buying and USD selling. We would expect that it continues this coming week. The Central Bank of Mexico is going to discuss interest rates but no one is expecting any actual adjustment. Their 4% short-term rate clearly gives peso buyers an advantage in cheaper FX rates in the forward market. Local currency expenses in Mexico can be managed better by using a forward or many forward contracts to lock a rate, with a known peso amount and value date. We believe the USD/MXN is going to continue to fall. 18.75 is the ultimate level but support at 19.95 and 19.50 should be this week’s focus.

CNY (6.5720): The PBOC continues to adjust their currency levels but 5.57-6.58, seems to be where they want to keep it. Many Chinese based companies have been keeping their US dollar invoices to American buyers at the rate of 7.00 CNY. Why? Over the last year they held their pricing in order to move their product. The fear of hiking prices, especially when demand was already crumbling, would have closed many of those companies. Now, with the economy recovering and demand picking up FX rates will begin to squeeze their margins, so we expect to see USD invoice prices to increase. A quick check? Ask for a CNY invoice along with the US dollar invoice. We can do a quick comparison and tell you which would be the cheaper to pay!