FX Weekly

FX Weekly Update – August 7th, 2023

Posted Under: Weekly updates

Another week, another range “trade” for the USD. The U.S. employment report on Friday was the primary week’s focus. The increase of 187K non-farm jobs was in line with forecasts. The U.S. dollar was at its highest for the last several weeks before the report. By the end of trading on Friday, the dollar fell back to nearly unchanged versus the previous week. Commodity prices, including metals, oil, and grains, declined throughout the week, only to reverse on the weaker dollar.

The week ahead has a complete global economic calendar. The highlight in the U.S. will be the CPI and PPI inflation reports. Economists expect these to continue falling, easing pressure on further rate hikes. The dollar will remain in a range against most currencies.

EUR (1.1000): The single-currency fell most of last week, printing a low at 1.0913, matching the levels from early July. The U.S. employment situation changed the momentum, and the euro popped to 1.1040. The trendline resistance (4-hour chart) held, and the interest in euro buying evaporated. This week we will see if there are enough buyers to push it through 1.1040 or if it will fall back into a range of 1.0900-1.1040. Trade the range: selling the 1.10s and buying the low 1.0900s. Do not add to losing positions.

GBP (1.2750): The BoE raised their interest rates by 25bps in line with expectation. There was not much activity with the GBP after the announcement. Further, the pound sterling has yet to do much this entire year. The Halifax housing data will be released early in the week, which may add some volatility. The range of 1.2600-1.3100 will hold throughout the rest of ’23.

JPY (141.50): The yen had been the weakest currency among the majors for the last several weeks. The BoJ left their overnight interest rate at -0.1%, but they did increase the flexibility of the YCC. Allowing the treasury to purchase JGBs at rates up to 1%, compared to 0.5%, which was the previous level. This caused a wild ride for the USD/JPY. The low was 138.06, and the high was 143.90. Settling the week at 141.80. With all that activity, the yen can fall further against the dollar. We are targeting the 148.00 level, adding another worry to the BoJ. The 145-150 levels have been targeted for intervention. USD buyers be cautious. Yen buyers, do not hesitate to use these levels to add to forward positions.

CAD (1.3380): We have focused on the 1.3100-1.3400 range. Last week, USD/CAD traded both sides of that range. Canadian employment had another negative number. The Canadian economy lost 6,400 jobs last month—two months in a row of negative job gains. This prompted the Canadian dollar selling to 1.3400. While the market was digesting this poor report, oil was rallying and is opening this week at $82/bbl. This upcoming week will be an interesting one. Will Canadian dollar buyers become aggressive with the higher oil prices? Or will the overall USD strength push the pair toward 1.3750?

MXN (17.0800): We are humbled by last week’s dollar strength—the sharp move to 17.4200 was unexpected. Market stop-loss orders to buy USDs and sell pesos were touched above 17.0000 and again at 17.2000. The frantic buying of dollars did not slow until the week’s end. Where does USD/MXN go from here? That will be determined by Banixcos’ rate announcement this week. Inflation is coming down across the globe. Central banks have, at least to this point, engineered a “near soft landing.” The high peso interest rate (overnight: 11.25%) has done its job. Expect no further rate hikes. We will not be surprised if the USD rallies through last week’s high and pushes toward 17.8000.

CNH (7.1850): The range last week (7.1300 – 7.2150) should also be the coming week’s range. The Chinese economy has slowed dramatically. Unemployment for young people in China has skyrocketed. The PBOC holds the key to future movement in the currency. We will not be surprised if the currency remains near these levels for some time. The cheaper CNH equals cheaper Chinese goods. Demand will increase and inject life into their economy.