FX Weekly Update – August 21st, 2023
Posted Under: Weekly updates
The dollar rallied last week on the back of FOMC minutes. Within those minutes, the Fed members are concerned that inflation remains their number one worry. They did not rule out further rate hikes. This statement sent U.S. interest rates and the dollar higher. The USD begins this week at the same levels as it closed on Friday and the market is focused on the upcoming Jackson Hole Economic gathering. Statements from there will be closely monitored for any indication of further rate hikes, or will it become apparent that rates have already peaked?
EUR (1.0875): Support for the single-currency, 1.0850, was briefly pierced on Friday but recovered and remained stable at the current level. Inflation remains a concern in Europe, which should include a focus on the ECB—their last meeting, which had a 25 bp rate hike, included a response about holding off further hikes. 1.0850 and 1.0780 are support levels, while euro rallies should find resistance at 1.0920 and 1.0950.
GBP (1.2740): U.K. inflation printed 6.8%, released last week. The pound sterling rallied against both the U.S. dollar and the euro. The BoE was the first central bank to raise rates back in 2022. They remain hawkish concerning inflation and potentially higher energy prices. These factors are keeping a “bid” under the GBP. The most likely path is for a higher pound. 1.2920 would be a good level to focus on for the next leg of the rally. The trendline support is at 1.2690. A “close” below that level could open a deeper fall to 1.2600.
JPY (145.40): USD/JPY rallied to 146.55 on August 16th but quickly retreated to 144.92. Jackson Hole may be a platform for the BoJ to discuss their thoughts on more flexibility in their YCC and concerns about the weak yen. Support at 144.00, and last week’s high will be the range to trade this week.
CAD (1.3535): The Canadian dollar is under pressure, falling much further and faster than GSFX thought. Energy prices are stable; oil is dealing at $80. The CAD weakness is more about U.S. dollar strength versus any negative news about the Canadian currency. The 1.3600 is a resistance area, as 1.3250 is support.
MXN (17.0300): The peso has traded in a narrow band of 17.15 / 16.95. The overall direction remains for USD/MXN to move lower toward 16.50. The demand to purchase pesos is growing as more U.S. companies locate some of their production in Mexico. Buying pesos to match future cash flows will remain our focus.
CNH (7.3250): The Chinese will no longer report the employment situation for young citizens. Read that; it is so bad that they do not want that information released. There have been many media reports of the Chinese economy recovering. Now, the market is selling CNH, and it is falling quickly. Keep an eye on 7.3500 and then 7.4000. Support is at 17.2000, and the latest low of 16.9200.