Another week of volatility has the USD edging closer to the January 2018 low of 88.16. One of the characteristics of this USD weakness has been the rotation of currencies from week to week.  For example, GBP was the leading currency last week, while EUR, CAD, CNY and MXN traded sideways or in one case, lost ground. We would claim this is a healthy sign for the trend when it has different currencies show strength and will avoid any severe snap back from an “oversold” USD. This week, between Christmas and New Year, is always a difficult one. Trading desks are often staffed with less experienced traders, liquidity is limited and yet there will be corporate balance sheet activity.  This may create volatility and potentially distort the year-end mark to markets!

Why you need to know: Given how currencies trade, 24 hours coupled with liquidity issues and volatility, it is prudent that those of you looking for entry / exit levels should be very aware of this week’s market activity. There may be a drop in a currency that provides you a cheaper entry point, this is where the GreenShootsFX digital wallet can help. Check our growing list of currency accounts or call us (855-473-9768) and we will describe the benefits.

EUR (1.2200): EUR begins the week near the high point of last week. Volatility has not been present, it has really been a story of losing ground against GBP after the Brexit agreement and moving only slightly higher against USD. The levels to watch: 1.2220, 1.2260 and 1.2275. Below the current market: 1.2170 and 1.2120. There will be more movement from GBP against EUR leading to a choppy trade for the single currency. Separate note: The EU kicked off their Covid vaccination program this past weekend.

GBP (1.3540): Last week’s strongest currency reacted as expected after the Brexit trade agreement. Now, there are more hurdles ahead for the agreement (fishing waters) but a huge step forward has settled the naysayers. Hopefully, we will never have to write about Brexit again! 1.3500 had been the main level of resistance over the last 12 months and now that the pound has moved above it the next target is 1.44. The speed to reach this target depends on more progress with the trade agreements and the decline in Covid cases. One without the other will still be supportive but together the currency will rally against both USD and EUR.

CAD (1.2850): We mentioned earlier in our write-up that one currency fell against USD and that was in reference to CAD. Oil remained at $48/bbl. but the currency fell after several attempts to rally through the 1.2600 level. Profit taking coupled with the concern that Covid may continue to keep a lid on the global economy pushed the USD higher to 1.2900 before settling into its current level. Oil prices should continue to rally and of course the $50 bbl level will be important (last seen in the first quarter of 2020). We have said this several times, we expect oil to recover to $60/bbl which will push CAD higher (USD lower) to 1.20-1.25. This current level does give companies the opportunity to purchase CAD at levels that may not be seen for some time.

MXN: (19.80): The peso has traded sideways and will most likely continue until there is more information about the U.S. administration’s immigrant policies. Combine that with how Mexico is going to administer the Covid vaccine and what their numbers look like etc. If you are a company that has expenses in Mexico, this level and any move toward the 20.20 level will generate great opportunities to buy MXN and hedge those.

CNY (6.52): Similar to MXN, CNY has remained very stable above 6.50. There has been very little volatility. We maintain that the CNY will continue to strengthen toward 6.40, 6.30 and potentially to 5.85. Right now, there does seem to be very strong support for USD at 6.50. This could be the PBOC‘s attempt to slow down the accent of their currency. If this is the case there should be concern in all risk managers minds that the influence of the Chinese central bank on CNY is credible and will most likely keep the market from getting too long CNY / short USD.