FX Weekly Update – December 21st, 2020
Posted Under: Weekly updates
We head into Christmas week with USD at its weakest level of 2020. There are developments that are happening, specifically the emergency shut down in the UK, based on a new “strain” of Covid that is 40-70% more transmissible. Secondly, there has been a report of a major hack of various U.S. government and private entities. Lastly, the second Covid vaccine, this one from Moderna, has been approved and is out to the public with of course the essential workers and elderly receiving it first. This has been the first week in a long time that we have not led with BREXIT! Yes, it is still up in the air but there have been bilateral trade agreements between the UK and some EU countries. These may be enough to settle the EUR and GBP markets, interest rates and currency.
U.S. House / Senate have reached a deal on a $900BN Covid relief Bill!!
We are in for a wild ride into 2021! Come back to GreenShootsFX.com often for updates. Please contact us with questions! We are here to help through these uncertain times.
Why you need to know: There are several currency impacts that the above factors will play into but let’s start with the fact that if you are a U.S. based company, any of your foreign sales or revenues will now be worth more in US dollars. There is a flip side and that is any foreign currency sales will earn you less. GreenShootsFX is dedicated to not only providing market leading technology to move currency around the world but also be the dedicated advisor to help build a risk management program to minimize the impact of a volatile currency market, protecting cash and margins!
EUR (1.2200): The currency extended its gains last week and have maintained those gains even as GBP has fallen due to a new lockdown. There has been a “technical” move that has been playing out perfectly on the hourly EUR charts. For the Elliot wave geeks, EUR is either completing a major “C” wave and should begin trading sideways or has energy left for another push toward that 1.2500 level. However you like to draw it up, beginning to layer in euro sales may be prudent.
GBP (1.3400): How did we get here? The trading on Thursday/Friday had been trading at 1.3625 and now we begin the week 200 pips lower! The “new strain” of the Covid virus which has apparently been infecting the UK has pushed the government to a country wide close. We remain positive that GBP will benefit from the overall USD weakness and the final Brexit outcome. Companies faced with sterling expenses may need to be more aggressive in purchasing the currency and holding it on our digital wallet to pay out later in the year.
JPY (103.35): Last week’s range of 102.85 to 104.60 was agreeable to the traders. Expanded levels does signal that the markets are nervous and trying to find value. The yen is a currency that will trade quietly in a narrow range and then over a very short period move 5 percent! JPY payables are getting more expensive and we would say that they will remain trending higher. Use the relatively cheap forward market to hedge against higher JPY.
CAD (1.2785): Something doesn’t feel right with CAD. We have been saying for months, even years that the correlation between CAD and OIL is strong! Last week, during Thursday’s sale of all things USD, the currency pair traded to 1.2685 as oil rallied above $48/bbl. USD/CAD is already pips higher to begin the week and oil is now above $49/bbl. We suggest using this short-term change as an opportunity to purchase CAD either with a forward contract or utilizing our digital currency wallet. Oil and other commodities remain well positioned to trend higher and that will benefit the Canadian economy.
MXN (20.00): U.S. equity markets remain near historical highs which should be positive for the peso. Why? The amount of manufacturing in Mexico that is sent north to the U.S. is substantial and with Covid making China less attractive more companies will be utilizing Mexico’s infrastructure. The demand for MXN will increase. Two reasons why (1) natural demand for the currency for payroll and expenses, and (2) the interest rate for 10 year peso is at 5.36%, versus USD 10 year which is below 1%, at 0.95%. The range for MXN has been tight at 20.30/19.65 in December. We suggest that the peso will get stronger, so these levels remain attractive to purchase.
CNH (6.5350): GreenShootsFX has been forecasting the yuan or CNH, doesn’t matter how you want to consider them, to be stronger and test the 6.40 area and then 6.30. Taking a step back for a second, there does seem to be interest to purchase USD sell CNY at the 6.5000 level. Several attempts have been made over the last couple weeks to push through that level, only to have the USD snap back! We have not heard of any “official” buying but there is a reason the USD has found support.