FX Weekly Update – February 1st, 2021
Posted Under: Weekly updates
Where to begin this week? Should we talk about the disruptive nature of short sellers in the equity market? How about 40 Executive Orders signed by President Biden? Maybe we will let you read about these on your favorite websites or if you are ‘old-school’, the paper. The dollar spent last week moving higher against most currencies and in our previous comment we did highlight this as a possibility; happy to see that USD is listening to GreenShootsFX. Hold on, take a step back! We used that statement because after the week’s activity in the equity markets some “experts” are blaming the hedge funds and other “experts” are blaming the random crowd that bought the stocks and caused a short squeeze. We have to say that the currency markets are a $6.6TN/day business and no one person, entity or country, is large enough to impact the value of a currency, not in the long term! Expect this week to be a volatile session where the USD will most likely continue to strengthen. Consider this week and last week, as a flight to quality with the dollar and U.S. treasuries being the beneficiaries.
EUR (1.2120): The last two weeks have had EUR trade between 1.2050 and 1.2200. This is a very tight range for any currency but the coming week may provide the volatility to move the pair. GreenShootsFX is looking for a break down below the 1.2050 level with a target of 1.1900. This would not damage the overall trend of EUR, which of course is higher (target 1.2500), but rather more a short-term correction, cleaning out poorly positioned longs and giving buyers of EUR an opportunity to pick up a slightly cheaper currency!
GBP (1.3700): We have discussed our view of GBP against USD and EUR for several weeks and we maintain that the pound will move higher and remain the focus of the global investment community. It has ground to make up since the June 23, 2016 Brexit vote caused GBP to fall below 1.2000 and then languish between 1.2000 and 1.3000 up until last month’s EU/UK agreements. Keep an eye for any dip below 1.3500 for a potential entry point to purchase the currency.
CAD (1.2800): GreenShootsFX have repeatedly discussed the relationship between CAD and the price of oil. We have talked about it so often that one would think it is the only thing that determines the value of the Canadian dollar. Well, there is this other thing, the same thing that happened in the equity markets last week which is the classic ‘short-squeeze’. Oil prices are maintaining a recovery bid (which means it will move higher) while the market got too short USD/CAD. Support at 1.2600 was tested several times and held so the ‘shorts’ covered their positions and pushed USD/CAD to the current level. Trendline resistance comes in at 1.2900 this week and above that 1.3000. Need to purchase CAD? Anywhere between 1.2900 and 1.3000 may offer you the best chance.
JPY (104.70): Yen has been sold for two weeks as the equity markets are looking for fuel to keep the rally running higher. We have talked about the cheap funding that the yen provides. The range for USD/JPY has been 102.50 / 105.00, and we are now dealing at the high end of the range. There can be a push toward 106.00 if the equity markets stabilize but just as easily there can be an unwinding of these carry trades (sell USD buy JPY) and that will happen quickly. Buying yen for future needs either through forward contracts or by holding a balance in your GreenShootsFX digital wallet you can save some dollars if the yen rallies from the current level.
MXN: (20.50): USD did make a very nice bounce against the peso this past week. Oversold? Yes! Stalling oil prices? Yes! Inflation? Yes! Let us touch on this crazy phenomenon. Maybe unsurprisingly Mexicans east, on average, one corn tortilla each day. Corn prices have jumped to $5.50 (March contract). These are historically high levels. The struggle now for the Mexican central bank: do they raise rates to battle the inflationary pressure of high corn prices? Or do they wait on the sidelines and see if this is temporary. Like all other economies they are in the very beginning of a recovery from Covid-19 and their reported number of deaths and infections may be well under actual numbers. Next level of resistance for USD/MXN is 20.80, we expect that to be touched early in trading this week. Any companies that need to fund operations in Mexico, including employee payroll, rent, utilities, etc. this is a great time to purchase pesos and specifically through forward contracts.
CNY (6.4790): We are going to just sum up China this way: the currency is dealing between 6.5000 and 6.4500. We are targeting 6.30 then 6.05 and 5.85! Now, with that in mind, China announced Taiwan will not be independent, Hong Kong is being slowly absorbed into mainland China and with the KeyStone Pipeline cancelled in the U.S. the pipe is now moving to the west coast of Canada, making its way to China. These and other policy changes in both the U.S. and China should keep the currency markets interesting.