FX Weekly Update – August 30th 2021
Posted Under: Weekly updates
The currency markets were unusually quiet last week, overshadowed by the deaths of 11 U.S. Marines, a Navy medic, and Army soldier, along with scores of Afghani citizens. Surprisingly, this did not cause any change in the market. No flight to safety, no jump in U.S. treasury purchases; literally no movement. Oil prices did bounce last week from the previous week’s low of $62.50 to end at $68.65/bbl. U.S. yields did bounce around and ended the week at 1.31% and U.S. equities did end the week in record territory. This coming Friday is the employment report in the U.S., forecasts for non-farm jobs is a robust 700K. Keep in mind, the U.S. has over 10 million open jobs.
An interesting development over the last two weeks, that is important to highlight, is each week began with U.S. dollar buying and by Friday those positions had been reversed and the dollar is sold off into the weekend. This is a different situation than in the weeks, months and years past. Markets will buy dollars into a weekend where uncertainty is the dominant theme. Afghanistan, Delta and of course lack of a Southern border in the U.S, all add to this concern. Keep this in mind and as always there has never been a dependable time to buy or sell a currency based on a weekly trend.
EUR (1.1800): Similar range as the previous week. Closing at the high of its range. This will be a difficult week for the U.S. dollar. The line in the sand “get out of Afghanistan” is August 31. The concern of additional terrorist attacks prior to that will keep markets on edge. Regardless of the economic reports due out, currency markets will not be as focused on those. The two main reports are GDP, Eur PMI and retail sales.
Resistance: 1.1820, 1.1850; Support: 1.1700, 1.1650
GBP (1.3740): Last week, the sterling climbed to close slightly above the previous week. This type of action would suggest further strength this week but as we mentioned with the uncertainty in Afghanistan there is no reason to believe that buyers will push it too much higher. We believe that the dollar is overbought so more GBP buyers should take the pound to 1.3800. No major economic reports this week.
Resistance: 1.3780, 1.3820; Support: 1.3700, 1.3600
JPY (109.80): The end of the week yen buying made sense. The currency is a safe haven and buying it into the weekend was no surprise. Couple that with late week EUR/JPY buying (funding the carry trade) and the dollar fall was inevitable. The question is will it continue? We would say yes, at least toward 109.00. But, if any trouble arises with the U.S. exit the equities may be impacted and those carry trades unwound (yen selling).
Resistance: 110.20, 110.70; Support: 109.20, 109.00
CAD (1.2620): Oil prices have rebounded and so has the Canadian dollar. Goldman Sachs reiterated their forecast for $80/bbl. by year’s end. This would also push the U.S. dollar below 1.1900. Clients with Canadian expenses would be right to purchase Canadian dollars and either “park” them in a holding account or utilize forward contracts to hedge those expenses. Clients with Canadian revenues should pick levels (1.2300/1.2050) to buy U.S. dollars/ sell Canadian dollars and increase margins on those Canadian sales. Canadian GDP, early in the week is the highlight, but again, as we know, it is about oil prices.
Resistance: 1.2700, 1.2790; 1.2585, 1.2490
MXN (20.2000): The dollar rallied to the high of the week at 20.4270, before falling. This level now becomes important resistance, along with a major trendline point of 20.5000. We are always encouraging our clients to purchase pesos in the forward market to hedge their expenses. Two benefits; firstly, the ability to lock in the dollar cost of those expenses, and secondly because of the large difference with the interest rates the forward market provides an even weaker peso. Entering this week, a strong dollar coupled with the forward points gives a major advantage to non-Mexican companies with Mexican manufacturing or assembling.
Resistance: 20.4000, 20.5000; Support: 20.1500, 20.000
CNY (6.4585): Major geo-political issues happening with China and the middle east. Iran and China have come to an agreement on oil sales as well as China using Iran to move product. This is another leg of the Belt and Road initiative which is a shipping and over-the-road project to connect China through Africa, the middle east and Europe. Secondly, China’s affirmation of the Taliban government is completely different than most other major countries. It provides them an opening to the vast number of resources in Afghanistan. The dollar fell and has reached its first support level of 6.4500. We have discussed the PBOC’s need to keep their currency steady, this coming week could be its first chance to defend the 6.4000 level.
Resistance: 6.5000, 6.5500; Support: 6.4500, 6.4000