FX Weekly

FX Weekly Update – August 9th, 2021

Posted Under: Weekly updates

We have survived another week of the “monthly employment situation”. This time, there is no question that the U.S. job creating engine is running at full throttle. Non-farm payroll beat expectations, adding 943,000 jobs in July. The employment rate fell to 5.4%, versus the precious months of 5.9%. Despite the Delta variant, these numbers are impressive. What does not get talked about as much, though, is the 9,000,000 job openings that remain in the U.S. economy! The yield on the 10-year hit 1.30% by the end of Friday, but that was from 1.15% earlier that day. Impressive move no doubt, but keep in mind that the yield was at 1.70% just a few months ago. Will another strong jobs number next month force the Fed to begin tapering sooner? Possibly. The dollar was very contained last week, up until about an hour after Friday’s release when it began to rally which has set-up an interesting week ahead.

This week, what we call real economic numbers are going to be released. Non-farm productivity, unit labor costs, API crude stock, CPI, PPI, import/export prices and one of our favorites, the Baker Hughes U.S. oil rig count.

EUR (1.1745): Let us begin with two obvious price actions for the euro. First, it failed to rally through 1.1900, secondly, it has fallen through trend-line support (1.1770), which began last November. Both signals the possibility of a much lower EUR over the next several weeks. We had been looking for a sustained rally but this employment number combined with sustained Fed accommodation and the struggles Europe is having, have changed the winds behind the rally sails. Economic reports in Europe are important this week as well. German industrial production, CPI, ZEW survey, EU industrial production and trade balance. All of these are meaningful and will provide the ECB with another look at the EU’s recovery.

Levels to watch: 1.1700, 1.1620, 1.1900, 1.1975

GBP (1.3865): The Sterling was hanging onto it’s early week gains near 1.3930 as the euro was falling which means it gained against the single currency, and this is always worth noting. The trade between the two areas is huge and important. It now takes more euro to buy a pound, which makes managing that risk as important as any other currency pair. The pound did fall near the end of Friday, and now it is looking at the support levels of 1.3775! The UK’s economic calendar all falls on one day, Thursday. Industrial services, trade balance (non-EU), manufacturing production, industrial production, GDP, and total business investment.

Levels to watch: 1.3775, 1.3740, 1.3930, 1.3950

GBP daily chart with Fibonacci retracements

JPY (110.25): USD/JPY has bounced back from the last couple of weeks. In fact, it bounced from 108.72 to the current level last week. The trend for the currency pair to follow the yield on the U.S. 10-year continues to hold, but again, the current 1.30% yield remains well below the 1.70% 2021 high during which the yen was low as 111.30. Economic reports are less important in Japan, only because their economy is much different than the other G7.

Eco watchers survey, machine tool orders, PPI and foreign investment in stocks.

Levels to watch: 110.60, 111.20, 109.78, 109.00

CAD (1.2580): Following the dollar’s overall strength has CAD prepared to push through important resistance levels. The previous rally in the dollar fell apart at 1.2807, and there is an outside possibility for the dollar to reach that again. I would not say that the level is in danger anytime soon, but currencies are known to test previous levels at least once before resuming in their longer-term direction. Housing starts is the only report this week for Canada, but it is an important one.

Level to watch: 1.2600, 1.2710, 1.2475, 1.2420

MXN (20.1000): While the dollar’s rally last week was impressive, it only managed about 20 pesos last week. We begin this week with 20.2500 as our first level of resistance. It was the high print from July 20th. The most difficult issue with the peso from reporting g perspective is that the currency, and the Mexican economy, is that it depends so much on the U.S. economy! If its northern neighbor is doing well, then the currency should be stronger and visa versa. Friday’s action did not reflect that theory at all. With that said, the peso should continue to move higher with 19.70-80 as great support, and 19.5000 below that. 20.2500 and 20.3500 are resistance levels.

CNY (6.4850): Little to add here. The PBOC remains more concerned about other aspects of their economy and trade deals. Keeping the currency stable will support their other issues.