The coming week is critical for markets, specifically the FX market where Britain, the EU, and the U.S. have a calendar of crucial economic data. Most importantly, the central banks in each country announce their interest rate decision. The EU and the U.K. release theirs on the same day (December 15), while the U.S. is a day before. The Fed is expected to hike 50bps, which has been debated, discussed, and debated again! This week, CPI is before the Fed’s decision, which is expected to match last month’s 7.7%. The dollar begins this week on a slippery slope. The 9% fall in the previous two weeks reflected the market’s perception that the Fed will slow or even stop rate hikes in 2023. U.S. treasuries rallied (rates lower), dragging down the dollar.  

EUR (1.0510):  The ECB will determine the euro’s short-term move when they increase their rates this week. Market expectations are for an increase of 50-75bps. The ECB was slow to deliver rate hikes earlier this year, which led to the single-currency’s weakness. The market expects the Fed to slow or stop hiking in 2023, while it believes the ECB will continue to raise rates. The result will be a weaker dollar v euro. That will be a relief for US based exporters with Euroland clients who are invoiced in local currency and convert those to USD. Resistance is at 1.0600 and 1.0750. Support at 1.0490, then 1.0350.  

GBP (1.2230): The Bank of England will raise rates this week along with the Fed and the ECB. 50bps is the expectation. Sterling has been performing well since its historic low. Last week’s high print of 1.2344 is now a critical level for continued strength. The rally has been moving in “stair step” fashion, moving higher, consolidating, and then moving higher. The current consolidation must make a new high this week; otherwise, the probability of a move back toward 1.1700.  

JPY (136.85): The fall in USD/JPY continues. Current consolidation is setting up for another move toward 132.00. The resistance level at 137.50 will be difficult to get above, but if the dollar yen does move above that area, 140.00 will be the next target. The interest rate gap between the two currencies is narrowing, helping strengthen the yen. The other factor helping support the currency is lower oil and other commodity prices. While central banks will be the topic this coming week, Japan has a light calendar and no BoJ announcement.   

CAD (1.3660): Oil prices are in the low 70’s, and the Canadian dollar is falling in unison. The currency pair is set up to test the high of 1.3977. It has yet to happen because the Bank of Canada continues to match rate hikes with the Fed. They are keeping some demand for the Canadian currency. This week will be pivotal for the U.S. dollar in general. Prepare to buy Canadian on any move toward 1.4000, conversely selling Canadian dollars near 1.3200.  

MXN (19.8000): Quiet last week, most likely the same this week. There has been dollar buying to cover positions after the support at 19.0000 was tested and held. The 20.0000 area is a critical resistance area, but there is no reason to buy dollars through that level. We always suggest buying pesos on any weakness, which remains the goal.  

CNY (6.9700): The continual news from China is about covid. Either it is increasing the lockdowns on its citizens or opening fully. The market has begun moving from the daily announcements and focusing on the economy’s fundamentals. The result? USD/CNY rejected the October high of 7.3750 and is poised to test 6.8400. The currency pair consolidates and will test 7.000 before moving toward the lower target.